Microhoo: Is it the culture, stupid?
The fallout over Microsoft’s (MSFT) collapsed bid to acquire Yahoo (YHOO) has provoked all sorts of hand-wringing about why the deal failed. Yahoo’s stock was up almost 6% Tuesday because Jerry Yang told The New York Times and The Wall Street Journal that he really was willing to do a deal.
But is he? And is he still, which the stock move would imply? I received a passionately argued note Monday from Drew Ianni, who runs programming for ad:tech expositions, whose conferences have become must-attend events in the online advertising industry. I thought it’d be worth publishing his musings in their entirety:
The collapse of Yahoo’s stock price was a widely predicted occurrence in that if the deal collapsed the market correction for Yahoo! is ultimately a non-event as Yahoo’s market value simply returns to the level before the dance with Microsoft.
The more interesting question is why did this deal collapse? None of us have been privy to the conversations between Microsoft and Yahoo. But from my perspective, this deal failed not because of any business related issues or price but because of culture.
Once again, Microsoft has proven that it simply does not understand the culture of Silicon Valley. Microsoft has a long track record of abusing its power in its attempts to destroy Silicon Valley companies. From Apple (AAPL) in the 80’s to Netscape in the 90’s to Yahoo and Google (GOOG) today.
These and other companies are part of the fabric of the Valley, have given it its lifeblood and represent the traditions and rich heritage of what the Valley is about. Those who seek to destroy this ethos are not looked fondly upon in Northern California, and Microsoft has long been at the top of that list. If you have been the schoolyard bully for 20 years and wake up one day to find that you have no friends - especially when you most need one - and no one wants to play with you, don’t be surprised.
And the public trashing of Yahoo and threats of proxy battles only made matters worse. Business is cut-throat in the Valley but it is rarely publicly cut-throat. Battles are fought behind closed doors and within relatively narrow circles. And the public airing of dirty laundry is considered unseemly and without tact. If Microsoft wanted to buy Yahoo, Steve Ballmer should have asked Jerry Yang out for coffee at Buck’s in Woodside instead of disrespecting him personally, the company he co-founded and help build, and the greater Silicon Valley.
This deal was never going to happen and the only reason there were conversations is because Yahoo faces some serious long-term issues. But even with a remarkably generous offer that simply cannot be matched by any other company, Yahoo chose to go it alone. That’s what most of us would do if we were publicly disrespected. It was looking like the arrogance of Microsoft would simply cost them a few extra billion dollars. But it ultimately cost them the entire deal.
I think Drew is on to something. There’s no question that there wasn’t a culture fit.
Having said that, I think Drew’s wrong. People talk endlessly about how Silicon Valley is different. Guess what? The laws of gravity apply here too. And this battle isn’t over.
@Zack,
You’re a pompous ass. Please take your “there” and “their” out to the schoolyard and have fun, but don’t share your issues with us.
umm…Zack, its okay to display ignorance by not reading the article and then having the gall to critique the author’s grammar….
but its much worse when you’re wrong.
I think Kenneth, in Austin, wins the understanding of my post debate. Here is one definition of hubris:
hubris [hew‐bris] or hybris, the Greek word for ‘insolence’ or ‘affront’, applied to the arrogance or pride of the protagonist in a tragedy in which he or she defies moral laws or the prohibitions of the gods. The protagonist’s transgression or hamartia leads eventually to his or her downfall, which may be understood as divine retribution or nemesis. Hubris is commonly translated as ‘overweening (i.e. excessively presumptuous) pride’. In proverbial terms, hubris is thus the pride that comes before a fall.
If you don’t understand Greek religion in a Greek culture, you will suffer hubris. Open source has become a religion to some people, just as Microsoft and Apple have in the past. The problem with open source is the fact that people believe you can create a world with no owner of the operating system. It does not work under capitalistic idol worship because it makes people believe in no god(s) of what they are doing. It is a false assumption. Even the Greeks realized everything eventually falls under the idol/god you worshipped. This is why they worshipped so many gods. Everyone must have something that keeps their hubris in place.
The problem is that the worshippers of the open source god do not understand their own religion. Thus, shame on them for their hubris.
Carl Ichan has announced a hostile take over of Yahoo. Microsoft has said they might reconsider. Sounds like the capitalism god has checked another groups hubris once again.
Google is next!
PS: I don’t worship the English spelling god. 
Obviously, it might be my down fall. Isn’t it just a blog!
Honolulu Zack: There is no “their” there. FYI, in “proper english” (sic) we spell English with a capital E.
The average Yahoo employee has gotten out of bed every day believing that Redmond equates to the dark side. Their peers, with whom they drink at Gordon Biersch or against whom they play Ultimate, all believe the same thing. They have spent their careers trying to disprove that “Resistance is Futile”. So how do you convert someone for whom the battle has taken on quasi-religious overtones?
In my blog 3 months ago, I asked the rhetorical question as to whether the distance from Redmond to the Valley was 849 miles or light years (http://iplicensing.net/2008/02/18/849-is-that-miles-or-light-years/).
But unfortunately, when Microsoft takes a close look in the mirror, it must admit to itself that it still struggles to “get” the web. Salesforce.com got the web and the power of SaaS. Google got the web and the power of advertising. Yahoo got the web and the stickiness of subscriptions. Add in Facebook, YouTube, and most of Web 2.0, and Microsoft doesn’t even earn “fast follower” status.
Perhaps its failure, to truly lead on the Web, is cultural and, ultimately, intractable. Perhaps the gravitational pull of the web in the Valley is too strong, even for Microsoft, to try and move it into its Redmond orbit.
That’s my .02!
If Yahoo wanted a deal, why have they not approached Microsoft and just say it to them and say “we will take $33 and lets do it”… why continue to dance around it again in public. Just do it!
Ken hit it on the nose; business is definitely a cut throat arena. However, Microsoft is very adept at playing in that arena. They know how to make money and are efficient at beating the competition. Those in the valley hate them for being very good at what they do and at making a lot of money doing it. Sure there is a cultural difference between the open source hippy mantra of the valley, but in the real world businesses make money for their share holders, period. Yahoo is not doing this in their business or through other means enough to justify business as usual. As such, they deserve to lose value until they do. My thoughts, once they are cheap enough Microsoft will look to buy again….. at a much cheaper price. Hopefully then Microsoft will clean house and create something that actually has real value (monetary).
The quote of Drew Ianni exemplifies the hubris of Yahoo! and its apologists. Yahoo! is a big player today merely because of a historical accident - they were the first portal player of any significance on the web. If you look at the realities of what they’ve achieved with that stroke of luck, their record is dismal. In almost every single venture that they’ve undertaken, they’ve been eclipsed by other companies big and small. In looking to buy Yahoo!, Microsoft was actually stepping away from its hubris-laden past and acknowledging that together, the two companies could improve on each other. Looking at the two companies dispassionately, one can see that Yahoo! needs Microsoft more than Microsoft needs Yahoo! “Culture” is just another way for Yahoo! to display its arrogance - and this will result in its downfall.
I’ve noticed that Microsoft’s developer tools division and a few others have been publically posting open source for a while. For good or for bad companies tend to change their own culture over the years. Maybe it is Ballmer who has changed little, while much of his company is changing.
Um, yeah. I stopped believing anything you wrote after you used “their” instead of “there” in the second line of your first paragraph. If you want to convince people that your opinion is the right one, especially people that are going to read cnnmoney about tech related articles, please use proper english…
I am not understanding “ken”. People use Open Source because it is better than MSFT’s junk. This is NEEDED if you need high “up-time” servers, like Yahoo. With Windows, performance would deterioate horribly, just like it did when MSFT bough HoTMail. Open Source is NOT as good as Apple. It is NOT a religion. But it does WORK. Apache is great. MySQL is unmatched by MS-SQL. FireFox is excellent. LINUX is “not for me”, but it’s a great alternative for the server room.
You’re right that gravity applied to Silicon Valley too. But, the culture there is very different from any other place in the US or around the world. Say Yahoo did sell… The moment all employees got their shares and options converted, they will be exiting the company en masse.
As such, all that Microsoft would be paying for is goodwill and a nice home page for most… The real assets, the employees would be long gone… Furthermore, Microsoft would do what it did with hotmail, at take a great product and destroy it.
Oh yes…culture is a problem. But, the problem is not exactly culture, but religion. Silicon Valley is not a culture, but a religion — a religion called open source. The open source religion believes their is no god of the operating system. (Thus, they don’t like microsoft because they think it is the god of the operating system). Therefore, worship is only of the self. Everyone can create their own operating system for self worship. Yang worshipped his own religion called Yahoo!. There is only one god called Yahoo. But, he forgot to understand that the Yahoo god actually was part of another operating system called, capitalism. The capitalistic god, will bring judgement against the god(s) of open source, in this case Yahoo!, and oust the high priests (board members). There is only one true god, capitalism.
Microsoft understands they are only part of a greater operating system! They have been humbled by it. It’s called anti-trust of the operating system.
When will the silicon valley get their fate!
Sorry, but Yang and the yahoo’s disrespected the god of capitalism. There is no such thing as open source — a religion that believes in no creator and owner of the operating system besides the self to make sure it works right. The wrath of capitalism is coming against Yahoo! for believing its own lie and disrespecting its god and believing it could be independent from the operating system.
The only thing in the silicon valley that understands this fact is Apple because they don’t follow the open source religion and have been humbled themselves by the capitalistic operating system to the point of almost extinction.
Time for Yahoo to eat their humble pie!
Google is next!
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Wall Street watchers think of capital markets and financial players out west as being on the "other" coast. That's not how it's viewed in the Pacific time zone. From the venture capitalists of Sand Hill Road to the bond kingpins of Orange County to the corporate finance department at a certain software company in Redmond, Wash., there's plenty going on "out there." Adam Lashinsky should know. A native of Chicago, he has covered West Coast finance for a decade, with an emphasis on money matters in Silicon Valley. If it involves money and it's happening west of the Mississippi, look for it in Go West. 
Is it just me, or does anyone else sense the DESPERATION on Microsoft’s part? They’ve been trying to drive a stake through the heart of internet-served software since Java.
And who is better positioned for the inevitable future when this occurs; Microsoft or Yahoo?
I’ll give you a hint: It ain’t Microsoft!
Oh, and Ken, last time I looked Apple was doing very well, thank you. Since Steve Jobs returned, they’ve gone back to focusing on their core competency: hardware. I predict that they’ll be in business long after Microsoft becomes just another software vendor.