Hostile bid for Yahoo could change future of the web

The future of the web may lie in whether Microsoft Corp.'s bid to acquire Yahoo Inc. turns hostile, which could happen as soon as this weekend.

The future of the web may lie in whether Microsoft Corp.'s bid to acquire Yahoo Inc. turns hostile, a possibility that could become reality any day.

For the average internet user, at stake is how the web will evolve over the next few years. In an initiative called "momentous" by industry observers, Yahoo fully embraced the Web 2.0 movement Thursday by throwing open all of its platforms to outside developers. The company is, in effect, going to let the public shape its various offerings, including e-mail, instant messaging and other online services.

"It's been a long time since I've been able to bring Yahoo together with the word 'exciting,'" said Karsten Weide, an analyst for research firm IDC in California. "This might be a sea change for the internet. It could be the end of the web as we know it."

The strategy essentially emulates Facebook's recipe for success. The social-networking site has enjoyed explosive growth by allowing the public to design new applications for it, which has drawn a constant stream of new users, traffic and advertising. The difference with Yahoo, however, is that it operates on a much bigger scale and is more important to the overall web than Facebook, Weide said.

Profound effects on the web

Yahoo itself touted the move as a major shift in philosophy that could have profound effects on the web as a whole.

"It is rewiring Yahoo from the inside out, across all of our properties, to fundamentally open up those web services and provide a consistent development model, a consistent deployment and consumer experience as well," said Ari Balogh, the company's chief technology officer, during a keynote at the Web 2.0 Expo in San Francisco on Thursday.

Yahoo's move may be too little, too late, however. Executives of the Sunnyvale, Calif.-based company have so far rebuked Microsoft's offer, currently valued at $44.6-billion U.S., prompting that company to signal that its bid may turn hostile. Redmond, Wash.-based Microsoft has indicated it may try to oust Yahoo's board and appeal directly to the company's shareholders.

If the bid turns hostile and Microsoft goes ahead with the acquisition, Yahoo's new strategy of open development is likely the first thing to go in a merged entity.

"Microsoft is not a member of that philosophy," Weide said. "Microsoft has a culture where it wants to controls things and, if they acquired Yahoo, they would scrap most of these open initiatives right away."

Much of Yahoo's leadership and engineering know-how are likely to follow, analysts say. There are large cultural differences between the two companies, and there are many Yahoo employees who simply won't work for Microsoft. The irony, said California-based technology consultant Rob Enderle, is that much of Yahoo's value to Microsoft lies in its engineers.

"When there's a hostile takeover, there's usually an executive purge afterward. That would typically lead to a relatively distinct change in direction," he said. "When there's a friendly takeover, a lot of the executives remain in place and there's less likelihood the end user would see much change."

Changes will be under the hood

The merger, which analysts give a very high chance of happening — hostile or not — is being driven largely by Microsoft's need to lower costs and expand its share of the internet search and advertising business. As such, the average web surfer isn't likely to see any major changes, at least in the short term, with many of the changes happening under the hood.

While Microsoft may seek to cut some costs behind the scenes, it is unlikely to tamper much with applications such as e-mail, messaging and websites for fear of alienating users of either company's services.

"Microsoft is not going to be in a hurry to eliminate popular sites from either MSN or Yahoo," said Matt Rosoff, an analyst with Kirkland, Wash.-based consultancy Directions on Microsoft, which specializes in covering the software giant. "The cost savings Microsoft might gain from combining the two services into one won't be enough to make up for the audiences they lose."

The true value of Yahoo for Microsoft, analysts agree, is in its engineers. By combining the two companies, Microsoft can streamline costs and free up developers to work on creating new and exciting web applications, which in turn would likely translate into obvious changes for average users over the long term.

Still, Weide said, it will be difficult for Microsoft to get over the disconnect between the cultures of the two companies, which allow its chief rival — Google Inc. — to maintain its lead in search, advertising and development.

"[Microsoft] doesn't have a very good track record with regard to acquisitions," he said. "They've never acquired a company that big, and there are huge cultural differences between the two. There are a number of concerns that indicate there might be problems with a unified entity."