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How MicroHoo can avoid the fate of AOL-Time Warner

Posted by: Aaron Pressman on February 8, 2008

One thing was certain on almost every story I covered in the late 1990s as the Internet policy reporter for Reuters in Washington D.C. No matter what the controversy, the cable television industry would be on one side, led by Time Warner, and Internet companies would be lined up on the opposite side, invariably led by America Online. The very biggest dust-up was over “open access,” or the notion that the government should require cable companies to let other internet service providers access customers via their emerging broadband cable networks — just like the government required of the telephone companies. The fight was lengthy and bitter. But when Steve Case and Gerald Levin famously unveiled their almost $200 billion megamerger, it looked like the war was over. I even appeared on CNN with Judy Woodruff and said so. Oops.

Only later did we learn the shocking truth — Levin hadn’t shared the merger idea with most of his top managers and had done nothing to sell them on it. The very first move I expected, the death of Time Warner’s woeful RoadRunner ISP and the elevation of AOL as THE premier broadband service provider of the 21st century, never happened. Time Warner could then have pitched the model to other cable companies and spread high-speed AOL everywhere featuring TW content. Instead, inside AOL Time Warner, the two sides continued fighting and refusing to cooperate. All that great Time Warner content that could have helped AOL become a top destination for online video, all those AOL customers ready to make Time Warner content insanely popular online, all squandered. And now, eight years later, they’re dumping AOL’s dial-up service and HBO is just barely on the Internet.

So now comes Microsoft (Symbol: MSFT) CEO Steve Ballmer and his offer to buy Yahoo (YHOO). If Yahoo goes for the deal, the lesson for Ballmer is clear. Be ruthless in forcing managers to work together. Don’t let one faction torpedo another by keeping alive competing brands. Pick the winners and move on. Is Yahoo ahead in getting its services ready for mobile phones, including those running Microsoft’s operating system? Go with it. Take a very hard look at Yahoo’s Panama advertising platform and whatever Microsoft’s got cooking. Probably only room for one platform going forward, as Ballmer already alluded to in an interview with the Wall Street Journal. Maybe there are a few areas where you keep two competitors running, say Hotmail and Yahoo’s email, but not many otherwise you’re wasting resources and failing to take advantage of the scale you’ve created.

Which is not to say that Ballmer should hole up in Redmond issuing decrees. As Wharton Professor Larry Hrebiniak has said, the integration plan has to involve all of the top managers:

People will say, “Do it quickly, get it over with.” I think that you have to talk about what is done quickly and what takes a little longer, and lay out an implementation plan to execute the integration well, decide what should be integrated [and] how, and just get people involved in that discussion so you’re not pulling major surprises and driving people away.

To be sure, those aren’t the only challenges for such a mega-deal and other competitors may steal the day no matter how well the Yahooligans and the ‘Softies get along. But if Ballmer plays it smart, maybe the major surprise will be that the deal works after all…

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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