The deal Microsoft and Yahoo made today to combine their ad and search efforts has its roots in the mid-1990s, near the dawn of the Web.
It was then Yahoo CEO Tim Koogle who made the decision that Yahoo would become a “portal,” a gateway to an internal Web world. All the smart guys in New York and in the mainstream media were urging this. Search, they said, was limited, it was techie, it was obscure. The real growth was in media.
Around the same time Microsoft decided it must “embrace and extend” its monopoly from Windows to Office to the Web, through Internet Explorer. Rather than selling what it made, it would bundle its monopoly products with its browser and dominate that way. This led to its antitrust case, and it has embraced, even extended itself into, the legal profession ever since.
So it was mistakes made long ago that created the new Microhoo. Yahoo will become the salesman and public face for Microsoft’s technology. The hope is this will slowly eliminate the technology, legal, and marketing mistakes both are known for, relying on the two firms’ complementary strengths.
That’s the theory. Many remain skeptical.
But there’s a more important lesson for you here. This lies in the nature of scaling, where Moore’s Law meets what some call Moore’s Second Law, the idea that as technology grows and scales it forces consolidation, and leads to limits on competition.
We see this in the chip market, where the number of viable companies declines as the cost to fabricate chips goes up. And we’re seeing it in search, where the increased complexity of the task means fewer-and-fewer search firms are viable.
This is not peculiar to technology. It’s true with any complex, mass-marketed product. The failures of Preston Tucker and, more recently, John DeLorean, show that the problems of scaling eventually snuff-out start-ups in the car market as well. At some point only government support can get a newcomer into the game.
In technology, however, this happens at Internet speeds.
Google, which picked up Yahoo’s rejected business plan in 1998, went in less than a decade from being a feisty start-up to one of the largest, and wealthiest, companies on the face of the globe. Now it has just one scaled competitor, along with small fry and regional competitors.
This pace is only accelerating. Any start-up must be ready for explosive growth, and hyper-evolution of the competitive environment, corporate lives measured in dog years.
Most people in the tech business understand this intellectually, but expecting it, planning for it, embracing it, those are challenges not just for entrepreneurs, but for customers and government as well.
Microhoo, uniting companies with a combined age less than my own 54 years, will now face months of scrutiny by U.S. and international regulators. When they’re finally finished, will the resulting company even be viable? Or will the growth of Baidu have made such scrutiny irrelevant?
