Brand Identities After a Microsoft and Yahoo Deal

By Ericka Chickowski  |  Posted 2008-02-08

There are a ton of questions surrounding the proposed Microsoft acquisition of Yahoo, even with Yahoo's latest rejection of Microsoft's initial bid. Top of mind for marketing experts, and consumers alike, is how Microsoft would handle the Yahoo brand if and when it falls under Microsoft’s ownership umbrella.

The evaluation of a brand’s strength in the market has always been a delicate art where analysts use a variety of earnings metrics, audience statistics and analysis of intangibles to attach a dollar value to a given brand.

Known as one of the top brand management consultancies in the world, Interbrand Corporation has ranked global brands by doing just that for the past ten years. Both Microsoft and Yahoo have consistently found themselves on top of the Interbrand annual brand ranking list. Last year, Microsoft garnered a second place spot just behind Coca-Cola, and Yahoo was brand number 55. Interbrand believes that Microsoft’s brand image holds a value of $58.7 billion and Yahoo’s is worth $6 billion.

Similarly, UK-based brand consultancy Millward Brown Optimor also ranks the top 100 global brands based on its assessment of their financial value. Last year the firm put Microsoft in third place, estimating its worth at $54.9 billion, while placing Yahoo in 42nd place with an estimated brand value of $13 billion.

A collision of such big Internet identities is sure to spark controversy when it comes to integrating each together. Microsoft has kept mum about how it will position Yahoo if the deal goes through, leading many to wonder what will happen to one of the strongest and longest-lasting on the Internet.

“I think certainly the issue of which brand will win is a bit of a challenge,” said Ronald Schmelzer, managing partner for ZapThink. “It would have been better if Yahoo filled obvious gaps that Microsoft didn't have, but given that there is a Microsoft analog to pretty much all of the things they're acquiring and Microsoft has not put forward a plan, I think for many Yahoo users it’s a big question mark.”

According to David Mitchell Smith of Gartner, the most likely scenario will be that even if Microsoft tries to streamline technology and processes between its online brands such as MSN and Microsoft Live, it will keep the Yahoo brand intact to leverage it for its strengths. Because even though Microsoft’s overall brand is stronger than Yahoo’s, its online brands suffer from a bit of identity crisis, Smith says.

“I would expect to see more of an emphasis on the Yahoo brand over time,” said Smith, an analyst for Gartner’s web services division. “Yahoo is one of the original brands of the web, it’s a pure web brand and I think it stands for something.  The users are pretty happy, they don't go there necessarily for the latest and greatest of everything, but what's there works well. MSN on the other hand has been around for along time and has meant a lot of different things to different people over the years, so it’s hard to say exactly what it stands for.”

The analysts at IDC research echoed similar sentiments in a Feb. 1 report released on the heels of Microsoft’s announcement last week.

In acquiring Yahoo!, Microsoft would buy a very strong brand, and we would expect that they support and nurture it,” the report said.  “For a long time, Yahoo! was seen as an important online alternative to Microsoft (the "anti-Microsoft") by many consumers. Things are no longer so black and white, but some users may continue to harbor similar feelings. Retaining the Yahoo! brand would be an important step toward keeping these long-time users.”

Keeping Yahoo users happy will likely be a big priority for Microsoft if the acquisition does go through, as their eyeballs will be instrumental in helping Microsoft credibly compete against Google’s online supremecy, particularly in the search and advertising markets. Currently Google reigns in first place on both counts, with Yahoo and then Microsoft trailing in second and third.

According to IDC, the acquisition wouldn’t vault Microsoft into first place, but it would definitely close the gap. Analysts with the firm say that Google’s Internet audience reach of 80 percent would only be slightly higher than the combined Microsoft-Yahoo businesses, which currently total 73 percent of Internet users. Similarly, Yahoo and Microsoft’s combined 22.7 percent market share of the online advertising market would bring both much closer to Google’s 32.5 percent share.

While Microsoft would understandably be interested in attaining a synergy between its online brands and Yahoo, branding experts such as Robert Frankel agree with the tech analysts that this shouldn’t come by way of an integration that would subsume the Yahoo identity.

 “If I were a betting guy, based on past performance, I would bet that Microsoft would keep the Yahoo brand identity in the same way that they kept Hotmail,” said Frankel, who consults regularly with Fortune 100 companies regarding their brands. “They would be foolish to throw away all of that brand equity because it is a very high awareness name “In fact, depending on what the egos are in place at Microsoft it makes more sense to fold MSN into Yahoo than it does the other way around.”

This is if an integration even needs to happen. Frankel believes that Microsoft might be most successful if it doesn’t even attempt to link its brand to Yahoo at all. Nurturing an illusion of a choice between two brands is not an uncommon practice after an acquisition. One need only look at Microsoft’s crosstown neighbor Starbucks for a successful example. When Starbucks acquired Seattle’s Best Coffee (SBC)  in 2003, the coffee goliath did nothing to signal to consumers that it had picked up this scrappy little competitor in a corporate buyout. To this day it allows SBC to operate under its own identity, giving unaware consumers the perception that they still have an alternative to Starbucks for a fancy cup of joe.

“The fact of the matter is that you could make a case for keeping Yahoo as Yahoo and MSN as MSN and let them live happily ever after,” Frankel said. “What do you care what portal these people come in on as long as they use it?”

On the whole, though, Frankel wonders whether the deal is a very smart idea from an identity perspective. Though both Microsoft and Yahoo rank well on big branding rankings, he believes that both brands suffer image problems at the moment.

“You've got two incredibly horrible brands that enjoy no user loyalty because both of them, though being successful in some regard, have never accomplished what brands are supposed to accomplish—that would be to turn their users into evangelists,” Frankel said. “Nobody is real happy with Microsoft; that doesn't mean they’re a bad company, but they've completely neglected their brand. And Yahoo is the brand that really deserves to go broke because they had the market and they let it all slip away, so they never understood what their brand was about either.”

Contrast these user loyalty issues with Google’s ascending star as a brand. Google may well have both Microsoft and Yahoo licked in terms of identity awareness online. Even though Microsoft is number two this year in the Interbrand ratings, none of its Internet subbrands scratch into the rankings. Meanwhile, Google sits at as brand number twenty—well above Yahoo’s slot. And in the Millward Brown Optimor ranking, Google sits atop the heap  as the number one 2007 brand, over both Yahoo and Microsoft. On top of this, Google also succeeds in turning users into cheerleaders, which is the true mark of a successful brand according to Frankel.

Google’s brand also has a leg up over both Microsoft and Yahoo in that it manages to maintain its identity as a search company while nibbling away at its competitors with small but successful forays into ventures tied to its core competency, primarily by way of easy-to-use and free Web applications.

Meanwhile, as a proprietary software company Microsoft has tried to compete with Google through similar applications, but many of these are outside of Microsoft’s breadth of experience as a software developer. Similarly, Yahoo shifted strategies away from search long ago to attempt to become more of an entertainment company than an information company. Frankel believes that both companies’ urges to branch outside of their core competencies has impacted their brands negatively, as this clouds the perception of what each brand really stands for. He says the tendency is analogous to the performer Jerry Lewis, who has always been a world-class comedian but continues to try to sing instead.

“Nobody ever tells him, 'Dude, you're not a singer; stick to what you know,'” Frankel said. “That is the exact problem that Microsoft and Yahoo have. Despite the image complaints, Microsoft is really good at software and Yahoo was really good at search, but both of them neglected their main focus to try and branch out into the other areas which they are just not good at.”

He also believes that both companies have a habit of acquiring brands and destroying them.

“That overall is basically a recipe for disaster,” Frankel said. “You have two non-brands whose cultures are different, who really haven't been good at acquisitions other than destroying them so who knows what you’ll be left with.”

Frankel is not alone in wondering how the merger will affect either company’s brand images. According to Schmelzer, the matter is as much up in the air as the deal itself.

“Is this going to be an Adobe/Macromedia deal, where the two brands are so strongly connected with each other and the synergy was so great that those brands were elevated because of the merger?” Schmelzer said. “Or is this going to be an AOL/Time Warner deal, where the merger of the two companies tarnished both brands? It was a complete failure with a huge amount of money lost; the idea made only tentative sense going in and on the way out it didn't make any sense. I don’t know, who knows right now?”