Who'll be swallowed up by Silicon Valley?

Feb 19 2008 By Giles Turnbull

The sands are shifting in Silicon Valley.  Microsoft, eager to foil Google's plans for global success, made an offer for Yahoo!, to the great consternation of many Yahoo! users and staff.

The offer was generous - $44 billion (£22 million). But after long deliberation, Yahoo! turned it down, saying it undervalued the company.

Opinions differed regarding Microsoft's motives. Some believed the company wanted to get its hands on Yahoo!'s advertising network, still a very strong asset.

Yahoo!'s search brand is strong too, especially in America. And it was widely thought that the brand was one thing Microsoft needed most. More people use Yahoo!'s online services than Microsoft's, despite the latter's decade-long attempt to encourage Windows users to sites like live.com and msn.com

Perhaps, then, a Microsoft-owned Yahoo! search would be a better moneyspinner than live.com

But what would it do with Yahoo!'s many other products, like Mail, events manager Upcoming.org, photo site Flickr and link-storage site del.icio.us?

In buying these sites, all of them cult favourites, Yahoo! made a statement that it intended to support the best products on the net.

And in most cases, it showed great restraint; Flickr has hardly changed at all since being bought by Yahoo!, the only noticeable differences being a small Yahoo! logo at the foot of each page, and the need to have a Yahoo! account to sign in.

What worries the Flickr users - and as expected, they were very vocal about this - was the threat of being "Microsoftised" if the deal went ahead. Users there even set up a group called "Microsoft, Keep Your Evil Grubby Hands Off Of Our Flickr".

You can see why Microsoft might want to buy other companies for their good brand image.

Eventually, though, Yahoo! rejected Microsoft's offer. Just days later, a large number of Yahoo! staff were sacked, as part of a planned series of layoffs to streamline operations.

Some of the staff posted updates of their sackings on Twitter (twitter.com), spelling out every detail including their official parting inter-view with Human Resources and the arrival of someone from IT to take away their company laptop.

Both Yahoo! and Microsoft can feel the ground shifting beneath their feet.

The rise of web applications is making Microsoft nervous.

There are growing signs that people are discovering a world beyond Windows and beyond Office, where small Linux-powered laptops like the Asus Eee turn out to be perfectly good enough for most tasks.

It doesn't matter which company buys which.

All of the tech giants - except perhaps Google, with its huge pile of cash - are facing an uncertain future.

In that sort of market, acquisitions are inevitable.

Giles Turnbull has a website at gilest.org