Microsoft, Yahoo cultures closer than believed

Integration still likely to remain a big challenge if merger goes through

SAN FRANCISCO (MarketWatch) – If Microsoft Corp. and Yahoo Inc. eventually agree to merge, a number of high-profile employees will find themselves reunited with a former employer – belying the notion that the companies nurture starkly different cultures and workforces.

But questions remain about whether that would make it easier for the high-tech giants to ultimately combine personnel.

Both companies have actually shared a number of workers of the type they’re both keen to retain, as they maneuver through Microsoft’s unsolicited acquisition bid.

For example, respected technologist Gary William Flake left his job as a principal scientist at Yahoo Research in 2005 to found Microsoft’s MSFT, +0.31% Live Labs research unit, focused on developing cutting-edge Internet services.

Others who have seen the inside of both companies include Usama Fayyed, a senior Yahoo YHOO, +0.09% executive overseeing its data systems who spent five years with Microsoft Research, and Scott Moore, a Yahoo executive overseeing its media properties who formerly served as a general manager at Microsoft’s MSN group.

Microsoft, which is pressing Yahoo to accept an acquisition offer made earlier this month that was valued at $44.6 billion, has sought to allay the concerns about integrating the companies by focusing on similarities among their respective employees.

In a memo circulated to employees and then filed with the Securities & Exchange Commission last week, Microsoft platforms & services division president Kevin Johnson wrote that, “Both companies share a passion for great engineering, creativity, and development of services and technologies that truly can change the world.”

“Some aspects of the two cultures will naturally merge quickly and some will remain unique in the near-term and merge more slowly over time,” Johnson wrote.

But while the companies have hired the same employees, Ken Siegel, president of Los Angeles-based management consultancy The Impact Group Inc., cautioned against seeing that as a positive sign for future integration. Siegel, who consulted for Overture Services Inc. when Yahoo acquired the Web search company in 2003, said it’s likely that Microsoft employees won’t have a healthy attitude toward their new colleagues, given Yahoo’s recent troubles.

Yahoo had posted disappointing fourth-quarter results at the end of January, sending its shares skidding lower in the days prior to Microsoft’s bid.

For Microsoft employees, “the prevailing assumption will be, ‘we know better and we’ll convince you of that fact’,” Siegel said. “All of the more brilliant, more savvy, more intellectually capable executives and engineers at Microsoft will ensure that the low functioning, failed managers at Yahoo get that message.”

A Microsoft employee who blogs anonymously as “Mini-Microsoft” seemed to second that idea in a recent post. “Microsoft has become way too huge to be effective and nimble in the creation of focused, passion-driven software. Fourteen-thousand or so demoralized people thrown on the heap does not help in the least,” the blogger wrote.

Old foes

For some key Yahoo employees, their status under possible new Microsoft ownership would seem to present difficult questions.

Marco Boerries, a Yahoo executive overseeing the company’s mobile phone services, first rose to prominence in the 1990s as the creator of StarOffice — a technology now positioned as an open source alternative to Microsoft’s Office software applications.

Boerries, whose company Star Division sold StarOffice to Sun Microsystems Inc.JAVA, -15.79% in 1999, was described in a Business Week article that year as quite possibly “The Last Man Standing Against Microsoft.”

Microsoft has historically been averse to allowing access to the underpinnings of its technology, raising the ire of an open source software community that’s seen such intransigence as an anti-competitive tactic. Microsoft has, however, softened its stance on enabling access to its technology in recent years. See related story.

Yahoo declined to make Boerries available for comment.

Unlike Boerries, those who have been with both companies before, like Microsoft’s Flake, may be eager to tap the expertise of former colleagues he’s spoken of highly in published interviews.

Microsoft declined to make Flake available for comment.

Buried in layers

Rob Horwitz, a former Microsoft employee who is now Chief Executive of Kirkland, Wash.-based research firm Directions on Microsoft, said that those former Yahoo colleagues will automatically face at least one formidable obstacle: Microsoft’s labyrinthine structure.

“The thing that would surprise folks at Yahoo is probably the number of layers and what it takes to get a decision on something,” Horwitz said.

One example of that might be the likely submersion of Yahoo’s Internet talent in Johnson’s sprawling Platforms & Services division – one of only three at Microsoft – which also includes products such as the company’s Windows software for PCs and servers.

In addition, Yahoo employees, currently at a company with more than 13,000 employees, would suddenly find themselves part of a company with over 70,000. As Johnson noted in his memo, Microsoft has hired over 20,000 people just since 2005.

Horwitz said one thing that employees at the two companies likely share, however, is a reverence for engineering. At Microsoft, he said, that often takes the form of worship of Chairman Bill Gates. “In large parts of Microsoft I’d say that’s true, it’s a reverence for the old man himself,” Horwitz said.

If Microsoft wants to successfully merge the two companies, though, Horwitz said that its potential headaches go well beyond blending employee cultures.

“The cultural mindset is just one of the challenges,” Horwitz said. “To think of all the things you’d have to do to meld the organizations and make it a successful venture really boggles the mind.”

Author: John Letzing

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