We live in interesting times as the Chinese say when it comes to industry consolidation moves. The New York Post followed by the Wall Street Journal reported discussions were in an early stage for Microsoft to buy Yahoo, or at least find some formal relationship for joint activities in the market. Yahoo and Microsoft are respectively the second and third players in the internet search business behind Google and this in theory would bring some balance into the market by creating a more equal player.

I use the words, in theory’ because in the new wave of Web based consolidation it doesn’t always seem to work in the way that traditional business acquisitions are usually justified. The two basic reasons for an acquisition have been; to grow existing market position through increasing revenues and gaining the benefits that size brings; or to enter a new aligned market by acquiring new products. However this doesn’t quite seem to fit with the rational that has been seen in the Internet and Media market.
The media market would have been characterised by Rupert Murdoch’s move onto the Wall Street Journal as moving to acquire the brand with the products that would meet the revenue and product ambitions of a typical acquisition. Shift slightly to two other similar brands in Reuters and Thomson and some thing else appears to be the motive, Bloomberg, the Google of the financial information world. A new market entrant has to be faced up to; same logic drives Warner to try to acquire EMI to face up to Apple, who equally could be termed the Google of the music market.
But why have these ‘Google’ like competitors gained so much of the market in such a short time against the established players and trusted brands? Why is it worth Microsoft even contemplating $40 billion to acquire Yahoo? Answer in a word the new term; ‘intimacy’. Online customers have longer, deeper and more loyal, relationships to those who get it right in giving them what they want. The maxim that a change is only a click away turns out in these new businesses not to be true, the challenge for competitors is to get them to try them at all.
The $40 billion is for customers, not revenue or products, indeed all the competitors arguably have the products already. It’s not combining the revenues, or the products, for critical mass, or market coverage, its combining the customers. The only way to compete is to assemble a similar enough number of customers, and then to funnel the existing products to this increased customer base through their existing ‘screens’.
We are starting to hear a lot about ‘intimacy’ and it’s no wonder when you realise this, and start thinking what happens in any industry sector when the first player really gets their online intimacy right, and creates the new ‘Google’ in their sector.