Microsoft Should Buy SAP Instead of Yahoo

Randall Stross of the NYT has an excellent idea, one that might save Microsoft from committing the most colossal strategic error in its quarter-century history. If Microsoft is going to buy a big company, Stross suggests, it should buy SAP--a company that actually does what Microsoft does well, which is sell software to corporations.

Stross picks up on the same theme we did in our "Microsoft's colossal strategic error" piece--namely that Microsoft's 13-year pursuit of the consumer Internet business has been a misguided attempt to rule a business it shouldn't be in in the first place: consumer web advertising. Buying a wounded player in that business, a company whose best days are arguably behind it, won't help Microsoft dominate the Internet--it will just further distract it from what it does really well--enterprise software. And it will likely end in disaster.

The heart of the problem, which Microsoft seems congenitally unable to recognize, is that no company, not even Microsoft, can fight and win wars on three brutally competitive fronts at the same time. To wit:

* Oracle, IBM, SAP, et al in enterprise software.
* Sony, Apple, Nintendo, Research in Motion, et al, in consumer gadgets.
* Google, Yahoo, Facebook, Time Warner, et al, in consumer media.

Microsoft is not a conglomerate like GE, and it can't win all of these wars. So here's what it should do instead:

* Swap its consumer Internet business and $10-$15 billion of cash for 51% of Yahoo.
* Consider spinning off its Entertainment and Devices business as a standalone company.
* Consider merging with SAP and really going after Oracle and IBM in the enterprise.

If Microsoft traded its Internet business and a bunch of cash for half of Yahoo, its shareholders would still benefit (by owning stock in a more successful Internet business). For reasons we've described in detail here, a stand-alone Yahoo would be far more likely to succeed than a merger Microsoft-Yahoo that is merely a small Microsoft division.

Microsoft is about to make a huge mistake that will likely define Steve Ballmer's tenure as CEO. We would like to see it not make the mistake (and also not take Yahoo down with it). But we, Stross, and others might as well be shouting down a rain barrel.

Source: AlleyInsider


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