Thursday, May 29, 2008

Microsoft and New Media. The Yahoo! deal.

Microsoft needs a revenue source for its products and services in a future contended by Software as a Service, and one characterized by increasing acceptance of Open Source. Microsoft recently lost in its bid to acquire Yahoo with its well defined new media offerings coordinated with advertising revenue.

A Redmond Review article, (see Redmond Review Yahoo) cites physicist Mark Buchanan's report on mathematical studies of networks that show the phase of super-connected hubs (such as Google and Yahoo today) eventually give way to more egalitarian networks from the simple processes of history and growth. Many nodes connect to Yahoo or Google as a start to searching out information. However, Buchanan’s conclusion on networks is that “Whenever limitations or costs eventually come into play to impede the richest getting still richer, then a small-world network becomes more egalitarian, as seems to be the case with airports and a number of other real-world networks.”

Furthermore, according to Arms (2002, pp 211-215) there is no goal of indexing the Internet entirely by any of the search sites. There is a higher return on investment for improving the secondary aspects of the search tools so they integrate better with revenue generating functions such as advertising or sales of the web search engine for corporate knowledge management software solutions. We have reached a point where the technical costs to overcome the limitations of web search engines is prohibitive and a plateau in functionality has been set. As with airports, other sites will eventually catch up with the leaders, and not much will distinguish one from the other.

Niche search sites have established themselves as a brand. Today’s two largest super-connected nodes on the Internet get the majority of advertising revenue. However, the trends in marketing may also be working against the continuation of the current aristocratic nature of the Internet.

Marketing is moving away from mass advertising the same message to a large audience. According to Duncan (2005, pp 211-212) the value of the Internet is the ability to send custom messages to highly targeted customer segments. The reach of a relevant message to a small but coherent group is higher than a general and therefore mostly irrelevant message to a large group. As the ability to identify and verify audience characteristics for smaller, specialty sites improves, advertising revenue may shift from Google and Yahoo to this new direction.

Failure to buy Yahoo was good fortune for Microsoft, the price was dear and prospects not as profitable as imagined. Super-connected nodes in an aristocratic network often give way to more egalitarian networks over time, their advantage then lost. That time is now for Google and Yahoo.

Arms, William Y. (2001). Digital Libraries. The MIT Press.

Duncan, Tom (2005). Advertising & IMC. McGraw-Hill/Irwin.

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