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Microsoft, Yahoo, Google and Palm

This CNET article suggests MS switch its acquisition focus from Yahoo, to compete in the online ad game against Google, to Palm, to compete in the handheld space against Apple.

This is problematic at best.

MS already has two strategies operating in that space: their traditional business model, where they license Windows Mobile to handset makers for PDAs and smartphones, and their Zune model, a mimicry of the iPod/iTunes ecosystem where they make the hardware and the software-- widely seen as a betrayal of their partners in earlier attempts to compete against the iPod with PlaysForSure.

The problem with Palm isn't just that it (the new Pre) uses Linux. The Palm stands to gain market share (if it can) just as much, perhaps if not more so, at the expense of Windows Mobile than the iPhone. While the Pre looks much more similar to the iPhone than an average Win Mo smartphone, it's a good bet that most of the people who liked the iPhone well enough to get one already have one. Palm backers from way back were split between the iPhone and Treos running Win Mo or Palm OS 4.x. The Pre can draw from Win Mo Treo users, PalmOS 4.x Treo users, as well as iPhone buyers frustrated by certain missing features (multitasking, cut and paste). However I think the first two are more likely; if you've been using Win Mo or PalmOS despite the popularity of the iPhone its because one of those missing features is a dealbreaker. If you need those features, but otherwise like the iPhone, then the Pre may be for you.

If you already jumped ship from PalmOS or Win Mo to the iPhone, it may be because those missing features were NOT dealbreakers for you, and switching carriers just to get them may not be worth it.

In other words, MS buying Palm to get the Pre means not only supporting Linux, but betraying their Win Mo licensees, and cannibalizing not only the sales of Win Mo devices not made by Palm, but perhaps even Zune sales (such as they are).

One last remark: in terms of wondering why MS is focusing on online ads, presumably so far out of their core business, while the handheld OS market is still there to be had, I think it is because MS considers it easier. Being in the OS licensing business on the desktop and being the dominant player, they understand how difficult things are and the value of momentum. I think they consider themselves to be doing about as well as can be expected under the circumstances, and think their existing strategy will eventually work (although the change of direction in the Zune program, and the similarities to Apple's business model both there and in the Xbox 360 ecosystem are telling).

I don't think MS thinks online advertising is hard. I think they think Google is where it is mostly through luck and clever marketing. I think they think enough cash can buy their way into that market, and that the best use of that cash is to buy Google's largest remaining rival, which is Yahoo. I think they think the failure of MSN to date is due to some vagary of an inefficient market, and not their own incompetence.

In short: I think they're going to keep going after Yahoo and keep largely ignoring Palm because handhelds are hard and (they think) advertising is easy, regardless of how far away it is from their other core markets.