Microsoft, Google and the five and dime principle

In all the he-said, she-said aftermath of the failed Microsoft bid for Yahoo!, all parties are unanimous about one thing. Google was the reason the bid was launched and Google was the reason it failed. Microsoft needed Yahoo! to compete against Google in the online world. But Google managed to spoil the deal by offering to share some of its advertising skill with Yahoo! This gave its board the confidence to hang on for a better price. 

In an interesting New York Times article on the deal’s collapse, the author muses that about the search giant’s influence:

(Google’s) economic power is still derived largely from a simple, seemingly prosaic business: the ability to place interesting text advertisements in front of people when they do searches. Advertisers pay for those ads - sometimes $1 or less - only when users click on them. In a sense, Google has built a highly profitabley$16.6bn empire a dollar at a time.

This comment made me think of the five and dime stores which sprang up in the US in the era before the shopping mall. The five and dime, in essence, would stock anything that would sell for a nickel or a dime. And on that basis, customers streamed in, finding themselves irresistably drawn to items that were affordable, attractive and cheap. The concept became the basis of 20th century mass-market retailing, later up-dated by Sam Walton into Wal-Mart, the world’s biggest retailer.

With the internet fast becoming the retailer of choice for more and more consumers, Google is today’s five and dime. And the moral here is that Microsoft needs to start thinking like Sam Walton if it wants to outsmart Google at its own game. And here’s a message for the Microsoft board: Walton didn’t get rich by taking over other companies.