It's Too Late to Apologize, Microsoft

"You tell me that you need me
Then you go and cut me down"

-- "Apologize," by OneRepublic

The proposed merger between Microsoft (Nasdaq: MSFT  ) and Yahoo! (Nasdaq: YHOO  ) hasn't even happened yet, but that doesn't mean the companies haven't been affected by it yet. They have, in a surprisingly big way. And no, it's not the good kind of change.

No need to yodel anymore
The recent layoffs at Yahoo! don't have much to do with the takeover attempt. They were announced before Microsoft laid its smooth moves on its smaller rival. What wasn't part of that early warning, however, was the quality of the people who are leaving -- voluntarily or otherwise.

Jessica Bowman, who was a search engine optimization (SEO) evangelist, was laid off, and entrepreneurial webmasters everywhere will sorely miss her. Advanced Technology chief Brad Horowitz left of his own accord, to take a job at Google (Nasdaq: GOOG  ) . Those are just a few examples. The brain drain has started.

Cheerless in Seattle
It's not much better on the Redmond side of the deal.

Steve Berkowitz, who joined Microsoft's online division after turning around Ask.com and selling it to IAC (Nasdaq: IACI  ) , left the company. His old responsibilities were complex enough that it requires three people to fill his shoes. Another former CEO, aQuantive head Brian McAndrews, is simply one in that triumvirate. Berkowitz will stay on for a few months to get his replacements up to speed.

And you don't have to be a software giant to snag some talent that was either directly pushed aside by this deal, or just disenchanted with the proceedings. Vodafone (NYSE: VOD  ) is stealing Pieter Knook, who used to lead Microsoft's mobile-phone software operations.

What's next?
Again, this is just the tip of the iceberg. The Yahoo!s don't want to go. The Softies who are in danger of being replaced feel disrespected. Updated resumes are a must on both sides.

There are plenty of talented engineers, managers, executives, and so forth on the Yahoo! side who would rather seek their fortunes elsewhere than be subjugated to Mr. Softy. Years of borderline abusive business practices -- or even the appearance thereof -- will do that to a hopeful buyer every time, especially when the target is a notoriously happy-go-lucky free spirit. Jerry Yang's official title is "CEO and Chief Yahoo!," and there is no such whimsy in Microsoft's executive suites.

My Foolish compadre Rick Munarriz merely hinted at morale issues in his explanation of why Google secretly loves this buyout. To me, it's a glaring deficiency that will bring untold misery to both Yahoo! and Microsoft. Assuming that Steve Ballmer pushes through Googly-eyed invites, News Corp.'s (NYSE: NWS  ) MySpace proposals, and Time Warner's (NYSE: TWX  ) YOL (Yahoo! Online) ideas and pays up for his newly beloved, he won't get what he thought he paid for.

The powerful Yahoo! brand name will remain, and so will the various Web properties that make the company tick today. You got Yahoo!'s present, Steve. Congratulations. But the future is leaving, or already gone. And the cream of your own online talent is leaving, too. The idea was "two No. 2s make a No. 1." The whole will indeed be a lot less than the sum of the parts, but not the way you imagined. It's the value of the combined operation that is going down the tubes.

Stop now, and you might stem the bleeding a bit, Steve. But I think the damage is done -- both Yahoo! and Microsoft's online division have been permanently damaged. Google won.

It's too late to apologize. It's too late.

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