• by Mark Simon , February 25, 2008

Much of the press coverage focusing on the possible Microsoft-Yahoo buyout has cast the story as a kind of fable in which a fading, mature technology company uses its raw financial power to scoop up a scrappy, but besieged innovator. According to this narrative, the real thing that's at stake here is innovation itself, and if Microsoft wins, we all lose, because there will be less innovation, fewer choices, and less competition.

Unfortunately, the truth of the matter is that innovation, while important, isn't really the make-or-break factor that determines success in the technology business: a view that's supported by even a cursory look at the history of the major players in interactive marketing.

Let's start with Google. Google, it's said, is the most innovative company in the world (and recently won a Fast Company Award for being exactly that). But Google didn't invent search, nor did it invent PPC advertising (which accounts for 99% of its revenues). Like Microsoft (whose main cash cow was always desktop operating system licenses), Google colonized a narrow but phenomenally lucrative revenue stream -- and its continual refinements of this stream have served marketers (as well as itself) very well, But none of Google's efforts to innovate beyond text ads have been successful. As it noted in its 2007 annual report, "revenues realized through the Google Print Ads Program, Google Audio Ads, Google TV Ads, Google Checkout, YouTube and Postini were not material in any of the years presented." I would add dMarc, Orkut, and a half-dozen other initiatives to this list. If Google is so innovative, why did it have to buy YouTube when it had already built a video service that was just as good from a technical perspective?

Then there's Microsoft. The myth is that Microsoft, once a vigorous innovator, has now lost its innovation juice and been reduced to buying up innovative tech companies to keep it moving ahead. But if you're familiar with Microsoft's long history, you'll see that even in its heyday, innovation never played a major part in its stellar success. Microsoft bought DOS from a vendor, cloned Windows from Apple (which "borrowed" it from Xerox PARC), leveraged its work with IBM on OS/2 into a presence in the enterprise market, and largely acquired, not innovated its way to global dominance (while crushing competitors left and right). Even its applications (aside from a few quirky games) weren't especially innovative, but they did work much better than the competition's (because of their special hooks into the Windows OS).

Finally, there's Yahoo, the "scrappy innovator." At one time, the idea of a well-tended Web directory was innovative, and this is the foundation upon which Yahoo built its reputation as "the world's most popular Web destination." But what has Yahoo innovated in the past five years? It's certainly broadened its feature set, adding photo-sharing services along with a slew of Web 2.0 bells and whistles, but the core of its continued popularity is based on very traditional services (such as e-mail, IM, and automated news pages). The reason Microsoft covets Yahoo is because of its traffic and brand equity, which took more than ten years to build, not its "innovative" engineers and developers, who have marginal value for Microsoft, whose halls are already packed with engineers working on similar technologies.

So innovation, while important, is no longer a definitive factor in the interactive world. Even the social networks aren't based on a particularly innovative idea. Myspace, Facebook, and LinkedIn are simply slightly better executions of TheGlobe.com, Geocities, and SixDegrees.com, which rose and declined more than a half decade ago. Video streaming has been with us for more than a decade, the basic ad units we rely upon have barely changed since the late 1990s, and contextual text advertising has been with us for ten years (Overture launched its revolutionary auction-based text ad system in February of 1998).

As marketers, we're faced everyday with choices that give us "innovative" ways to reach new audiences online. Hundreds of novel interactive companies call us up with new schemes to exploit emergent media, from social networking to viral to behavioral. But unless these "innovative" schemes make our lives (or our clients' lives) easier, they're not worth thinking about. What good is an innovative technology that fails to deliver the scale required for an effective interactive campaign? How much complexity is required to execute it?

Whoever can answer these very basic questions will be the winner, and there is no question that Google is in the best position right now to deliver the best efficiencies and scale for most advertisers, using its good old-fashioned method of serving up text ads next to search results. Will this be true in five years? Only if Google can extend its dominance in desktop search into post-desktop environments like mobile and the smart set-top box. Doing this will require some innovation, but more fundamentally, it will require executing strategies and partnerships where Microsoft and other traditional players (including telcoms) already have positions they've held for years. Nobody knows how this battle will ultimately turn out, but we as marketers will have a strong vote in the decision, because it is ultimately our dollars that will create the winner.