Microhoo, Yasoft, Mi-hoo, etc …

Pity the poor analyst at Forrester Research who predicted last week that the wave of mega-acquisitions in the software industry was over for now (see InfoWorld article, for example), adding Microsoft will be ‘the least active’ in terms of acquisitions. Just days later, Microsoft announced a $44.6 billion unsolicited hostile bid for Yahoo (prompting suggestions of hybrid names to describe any future software behemoth resulting from such a move – I like the Myspace associations of Mihoo myself).

Much of the mainstream media focus has been on the online advertising revenues and search and portal opportunities, and the perceived strategic need to compete with Google – who have since responded by raising monopoly concerns. I, however, have been more interested in the views of some commentators who see this battle as a potential turning point in the Software-as-a-Service (SaaS) movement, suggesting a successful Microsoft acquisition of Yahoo would help the Redmond giant kick its SaaS plan into high gear (see, for example: Microsoft’s Yahoo Offer Sets Stage For SaaS Battle With Google and Yahoo acquisition to boost Microsoft Saas offering).

Yahoo’s web services include a widely used hosted email service, plus Web2.0 offerings such as Flickr and del.icio.us. and Yahoo is predominantly a services business, while Microsoft remains predominantly a conventional software business – so the acquisition would appear to fit with the latter’s ‘software-plus-services’ strategy. However, assuming the deal were to go ahead, I think they make uneasy partners. The strategic ‘fit’ satisfies Microsoft, but as a way to compete with Google, which has made such a success of being a pure services business, it doesn’t seem logical. As the excellent Phil Wainewright argues here, the leading services players, including Yahoo and Google, essentially deliver software-powered services. Software and services are not separate: today’s successful SaaS businesses use a lot of software, but host it so that customers don’t have to do it themselves (thus incurring huge fees to license software – from Microsoft and others – and to maintain their own hardware).

So, it’s not a case of providing two alternative approaches. More and more organisations simply don’t want the hassle of in-house hosted applications and hardware. They are actively seeking pure services solutions, and Microsoft’s current hybrid strategy simply won’t appeal to them. Perhaps more interesting would be an alliance between Yahoo and Google to become an even bigger pure services business to truly test Microsoft’s software-plus-services strategy.