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Microsoft, Qi Lu and the future of online services

David Mitchell | Dec. 12, 2008
Top talent is becoming a growth issue

It emerged last week that Qi Lu had been appointed as president of Microsofts online services business. Qi Lu was previously vice president of engineering services at Yahoos e-commerce and search business. He will begin his new role early in the new year, reporting to Steve Ballmer.

A signal of renewed interest in a Microsoft-Yahoo deal

Ovum logoThere is no doubt that the appointment of Qi Lu to Microsoft would make the integration of Yahoo substantially easier. He would bring a detailed understanding of the talent, cultures and business processes of both sides to the table, although he would need some time to settle down in Microsoft before this ability would be at its maximum. One of the major concerns about any Microsoft-Yahoo acquisition, either a complete acquisition or a search-asset-only deal, would be whether the integration could properly be achieved without key staff turnover increasing, cultures clashing and innovation stalling. Bringing Qi Lu onto the Microsoft staff significantly reduces that risk. Even if a Microsoft-Yahoo deal does not make a comeback, Qi Lu is still a very significant hire for Microsoft, bringing substantial experience and talent to the table.

Since the abortive attempt by Microsoft to acquire Yahoo, many things have changed. To begin with there has been a substantial decline in the Yahoo share price, with a 52-week low of $8.94. This is a stunning decline compared with the 52-week high of $30.25. The rapid decline makes the original Microsoft offer appear significantly attractive, in hindsight. Secondly, last month saw the resignation of the Yahoo chief executive Jerry Yang. Many in the market were highly critical of Yangs handling of the Microsoft acquisition attempt and the lack of a substantive alternative that would have generated higher shareholder returns. Finally, there has been increased market speculation that a wider change of control may be on the cards at Yahoo, with the market investor Carl Icahn having raised his stake in the company to 5.5% having become a director at Yahoo earlier this year, subsequent to the threatened proxy director battle. Former AOL chief Jonathan Miller is being identified as a potential bidder.

Top talent is becoming a growth issue

As the market decline continues to strike home there is an increased focus on the potential turnaround effect that key senior talent can bring to companies in the same way that struggling soccer teams look to their star centre forward to score important goals. While the senior talent issue is important, there are some companies where the issues are so structural and intractable that more than top talent is required.


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