OK. Did Microsoft just absorb Yahoo for zero additional cost beyond its oft-stated plans to spend some 10-15% of its budget on search per year? Did Apple really stifle innovation with its carrier-friendly App Store rules? And what’s common to both companies’ developer strategies? Yes, no, a lot.
Working backwards, Apple and Microsoft offer their developer communities their favorite incentive — money. Seven million .Net developers come out of the Yahoo deal stronger than ever, with very few public comments from Yahooers hoping to move over to Microsoft like the ones that drowned out the proposed buyout phase of this deal. Back then, it was all about the complexity of integration of the Valley stack with .Net, and how ridiculous it was to think Yahoo engineers would work for or even with the Redmond crowd.
But the Yahoo deal was never about Microsoft. It was about Google cleaning Yahoo’s clock, leaving it vulnerable to the takeover that’s been happening in slow motion ever since. The original deal was tied to a timetable designed to clear the Bush administration before it left office, and no one seemed to recognize how serious Ballmer was when that deadline expired. Given the trouble Google had with its subsequent deal with Yahoo, you might have a little more respect for Ballmer’s counting of the cards in the first phase. Now, with Google out of the antitrust argument and in effect validating the rationale for the new deal, Ballmer is sitting pretty.
With Yahoo out of the search business, a two-horse race provides incentive for an attack on Google’s realtime challenges. It’s not so much that they don’t understand the stakes, but as with Google’s undercutting of Microsoft revenue streams, Microsoft doesn’t have to defeat Google in order to profit from a healthier competition for the efficiency of click-throughs. Just as television advertising is distributed across a four-network market regardless of NBC’s or CBS’s current status, so too will efficient results work across a 70-30 split. What does make a difference are the Web properties that house the ads, and that’s where social media and its follow clouds can make a big difference.
Here’s where the comparison with Apple and its developer cloud begins to resonate. Every time we hear the outrage of an unfairly damaged App Store victim, our first inclination is to think there’s some fundamental flaw in the relationship between Apple and its third party developers. The argument: Apple’s arbitrary limits are designed to protect AT&T from applications that subvert their revenue model, and/or Apple from losing its leverage obtained through the exclusive deal. It’s a complex series of checks and balances — subsidized device prices to spur dominant market share, all-you-can-eat access, and the use of onboard WiFi to keep the pressure on for further concessions.
The best comparison is one with Twitter and its third parties — rate limits and shifting favoritism with developers based on allegiance for a few select winners. The models cross over with Tweetie, which not only enriched its developer and investors but established a poster child for how to play ball and win in both the iPhone and social cloud spaces. Contrast that with the unhappy video developers who tread too close to the firewall between excessive 3G saturation and the more constrained 3GS upload model, and most developers will overlook the losers and dream of hitting the App Store lottery. It’s not really a matter of rules but rather timing: what won’t work today inevitably will work at some point when bandwidth can survive the new usage pattern.
So the answer to App Store rate limiting stifling developers is no, and it points a way to the Microsoft opportunity that grows out of the slow-rolling Yahoo dismantling. With Bartz focusing on high value media plays, .Net and Yahoo transplant developers will start looking for an iPhone-like platform to get comfortable with in the horse race with Google. That platform is Silverlight, which offers advanced realtime rich media features coupled with access to the Microsoft advertising platform. Interestingly, Silverlight and the iPhone share some powerful characteristics — H.264 support, on and offline application models, and streaming deployment of both media and application update code tied to an iterative transactive micropayments fabric. And the keyword: money.
Google, on the other hand, will be watched carefully as it attempts to hurdle the application barrier Apple is defining with the Google Voice slapdown, as well as deal with the difficulty of integrating Google Wave with its apps or vice versa. At some point, Microsoft will have to decide how long they can protect their enterprise control of Office at the cost of losing the global consumer market of the next generation. They may realize a Silverlight socially aware Office for the consumer space (netbooks, XBox, and down into Windows Mobile) can jumpstart a Silverlight App Store before Google has a chance to react. Selling that for a bargain price (free) to the Yahoo crowd will look like the next logical step in the Yahoo takeover, and make the increasingly sweeter pill a lot easier to swallow.