05/07/2008 06:19 pm ET Updated May 25, 2011

Yahoo Is Not the Problem - Microsoft Is

The spectacle of Microsoft trying to buy Yahoo feels like watching two dinosaurs trying to mate: painful and irrelevant. It is revealing not in its denouement but in its genesis. That Microsoft should even consider mounting such a bid shows how that its products have failed and its strategic thinking is stale. And while Yahoo shareholders are wondering how they're ever going to make money, I'm more interested in wondering whether we are watching the beginning of the end of Microsoft's dominance.

Consider, for a moment, the world in which it competes. A late entry after Netscape, Microsoft launched a truly better browser and won the browser wars. So what? You can't make money from browsers. And winning that war didn't prove that Microsoft had finally understood the Internet - it still doesn't get it. The gateway to the Internet wasn't the browser but search. And, as the world knows, Microsoft can't do search. But what about e-commerce? Not Microsoft's space. Internet telephony? Nope. Email? It's been left to cheeky startups like Xobni to try to bring Outlook into the 21st century. Social networking? Forget it.

Nor can it do content. Am I the only who remembers Bill Gates, as envisaged by WIRED magazine, floating in a pool dreaming of media moguldom? Well that never happened. As everyone told him at the time, it's hard to make the software world and the media world mix and Microsoft didn't try long enough or hard enough and it wasn't willing to change.

Databases? The market's owned by Oracle. Music? Owned by Apple. Movies? Likely to be owned by Apple, certainly not by Microsoft. Telco convergence? Microsoft isn't a major player. If I owned shares in Microsoft, I'd start to wonder what those 60,000 employees are doing in the 'velvet sweatshop' for which the company is famed.

I might draw comfort from two thoughts: operating systems and corporate sales. But my comfort would be very short-lived. VISTA is now widely recognized not just as a catastrophe - ugly, unwieldy, buggy, convoluted - that customers will actually pay to avoid. But it's an especially scary catastrophe because no one outside Microsoft has any confidence that anyone inside Microsoft can fix it. This may be a re-version of the old adage that the people who identify problems aren't the ones to solve it. But Vista confirms all one's worst fears about the way Microsoft builds its products: too many people, too slow, too much detail, no vision.

Which takes us, finally to the corporate market, which even Microsoft's fiercest competitors concede it owns. But for how long? The other day, I met an IT consultant - one of an army of people who work with small to medium-sized businesses, installing and maintaining their networks. What, I asked him, was his take on VISTA? Simple, he said. He was moving all his clients on to Macs.

Was he serious? Sure, he said. Look at it this way: Macs need very little maintenance because, basically, the hardware and the software work. That means they need less support. If I can charge the same for support but have to do less work - why wouldn't I recommend Macs? I asked if he worried about enterprise-specific software. No, he said: it was all migrating to the web, so it was platform-independent. Apple doesn't run a corporate sales team and Steve Jobs has always maintained he's entirely focused on the consumer market. But with IT consultants like this - who needs a salesforce?

When I contemplate the 27 million small businesses that operate in the US, 99 percent of which have fewer than 500 employees, I start to see that Macs stand a chance of becoming an enterprise solution for a very big part of the economy.

So while Yahoo shareholders are tearing their hair and wondering what will become of them, it's the Microsoft investors I feel sorry for. Sure, it was smart to walk away from a bad deal. But it's not the same as having a real strategy or products that work. Not being dumb just isn't the same as being smart.