Microsoft purchase of Yahoo readies it for software revolution

Its bid for Yahoo will see Microsoft betting the future of the company on the internet.

Its bid for Yahoo will see Microsoft betting the future of the company on the internet.

Microsoft's software is getting better, and that means it is harder for users to justify upgrading to the latest version. At the same time, Google is providing a basic suite of office productivity software for free.

Although Google's software may be basic, it is good enough for most tasks, especially given that people generally spend 80% of their time using just 20% of the functionality in packages such as Microsoft Office. One could argue that Google provides that 20%.

Microsoft may fear that users will realise they are only ever going to use 20% of the functionality they pay for. Why upgrade? Why buy Microsoft Office at all?

Microsoft is looking for a new revenue stream as the traditional market it has dominated changes to reflect a different approach to buying software: a shift from software being seen as a valuable differentiator in business to a perception that it is simply a utility for the business, paid for through per-use licensing or distributed freely, with suppliers making their money from online advertising.

Gaining traction online

The internet is not a Windows platform, and for Microsoft to succeed it will need to embrace open internet standards. At the same time, it will need to support existing users, who are increasingly choosing to run older versions of Microsoft products.

Industry pundits have said the £22bn bid for Yahoo is Microsoft's attempt to build a business based on online advertising.

Should IT directors be concerned? The bid figure is almost six times Microsoft's R&D budget, and it is clearly making online advertising revenue a priority.

For those who consider Microsoft a strategic business partner, the question will be to what degree they are affected by any dilution of the company's traditional software platforms: Windows, Visual Studio, SQL Server et al.

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