Yahoo’s Future – Scale vs. Innovation

Fred Wilson suggests Microsoft won’t get better by combining with Microsoft and even suggests that search market share may go to 100% Google in the future. His basic premise – innovation dies in large companies. Fred writes:

I suspect that many of Yahoo!’s best services will languish under Microsoft’s ownership and that users will leave. It’s happening already under Yahoo!’s ownership to services like Flickr and Delicious and MyBlogLog. It will be worse under Microsoft’s ownership.

Fred’s suggestion – break up Yahoo into smaller groups and refocus each group on innovation within the group rather than across groups (my interpretation of his argument.)

An interesting suggestion. Especially as it pertains to the services and office application business. But it leaves me wondering where the scale is for the business. Part of the rationale for the Yahoo acquisition is that it will give the combined company tremendous scale that can then allow them to aggregate audiences for search, behavioral, branded environments, services, etc. Google’s innovation has led to scale and that scale is essential to advertising and the application business. If you break up Yahoo, you lose a lot of its scale. At least in the short term.

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