Microsoft Recovery Plan. Step 6. Make it Official with Marissa

Microsoft has lost over $12B in its online division since it started. If you add the aQuantinve $6B write down, you have $18B of losses. Wow!!! There is a certainly a case for dumping this division to concentrate in other areas, but I think that is folly.

Microsoft needs to stay in this business. It needs to buy Yahoo and let Marrissa work her product magic to make this a great business. Amateur hour is over, time to step up.

I think Microsoft needs to be in the online business and by extension the Internet advertising business. Here is why:

•      The Consunerization of IT is not a fad. It’s a reality. Great consumer products designed for the consumer are making there way into a core business IT market. Staying in Online allows Microsoft to be part of this trend, not swimming against the tide.
•       Google dominates here. Facebook is second, but I believe Microsoft can be a player in this large growing market and be profitable.
•      In step 2, I recommended that MSFT be a leader in mobile apps. They can’t likely be achieved without staying in the consumer online business.
•     Running Bing and Outlook.com gives them experience building and running massive data centers and huge software systems at a global scale. This knowledge can be applied to their other cloud businesses.

That having been said, Microsoft is a bantam weight in a heavyweight division that features Google playing the role of Muhammad Ali and Facebook playing the role of Joe Frazier. Here is why this deal must finally get done.

·      Market Power. Google does $40B per year in Online Advertising. Facebook does $6.5B. Microsoft does $3.2B. Yahoo does $4.8B. The combined entity will have more market power and be relevant to advertisers.

•       Economies of scale. MSFT lost $1.5B last year here. Yahoo made $1.5B. There are a lot of redundancies that can be eliminated in this combined division can be solidly profitable. Get some merge consolidation experts in there and you will be in good shape.
•       The combined entity has some really nice properties. Bing, Skype, Yahoo Portal, Tumblr plus a lot of good Yahoo Content. If they take my advice in step 2, they could have Dropbox.
•       Executive Skill synergies. Marissa is a kickass product person who is helping change the culture and re-establish Yahoo in Silicon Valley. She can team with some badass Microsoft operators and use Microsoft’s huge cash hoard to compete with the heavyweights here.

Once the deal is done, one more thing needs to get done to make this merger work. Marissa needs to make the trip across Highway 85 to Cupertino. Tim Cook and Apple needs a partner to fight Google. The MicroHoo Internet and mobile applications need to become the default apps on iPhones and iPads. Bing Search, maybe rebranded on iPhones and iPads is a must.