Wednesday, July 02, 2008

The Secret behind Powerset Acquisition

So it has been. Finally, Microsoft and PowerSet reached an agreement of acquisition. It is a deal about $100 Million in total. A question is, however, why does Microsoft acquire Powerset?

I have been at Redmond face-to-face talking with a few Microsoft Live Search top engineers two months before. None of them, however, seemed sympathetic to the coming of Semantic Web. At the same time, however, Microsoft people did emphasize that they expected to walk in a different way from Google because Google is too powerful in its research capability to compete. Does this newest acquisition mean Microsoft suddenly changed its mind and decided to compete Google by adopting Semantic Web? I don't think so. In order to discover the secret behind this acquisition, we may need to look at and think of the following coincidental events related to the acquisition.

1) PowerSet went live to the public only at May 12.

Paul Miller thought "$100million seems like a poor return for those Powerset investors" since the investors have "injected their $12.5million way back in 2006." I agree to Paul's argument based on the assumption that Powerset is a novel semantic search engine full of potential. A question is, however, whether the Powerset approach is indeed full of potential despite of its novelty.

The ones who know the best of the answer to the previous question should be the Powerset investors mentioned by Paul. Especially after Powerset has already been public, its long-term potential must have already been thoughtfully studied by the investors. We can be confident that all of these investors are bright and knowledgeable; and moreover, they are not philanthropists. If all of these analysis are sound, there is only one conclusion we can draw---the potential of Powerset is limited.

Until now, the application domain of Powerset is limited to Wikipedia. As other technology analysts also pointed out, the Wikipedia pages are consistent in their format and there are people dedicating to polishing the English writing of many pages. Powerset's self-limitation of its service only to such a special external site indicates the existence of severe technology difficulty in its approach and it is hard to conquer. I, myself, is a Semantic Web researcher (and particularly on semantic annotation). Thus I very much understand the problem encountered.

With all the concerns, unless Microsoft really thinks of taking Semantic Web as its long-term strategy (which, however, might not be a bad idea), this acquisition is questionable to Microsoft's short-term goal. Hence it becomes confusing---is Microsoft really thinking of going long or going short? Or, maybe, Microsoft plans to take both since it just has too much money.

The investors of Powerset are not foolish, and nor should we assume Mr. Ballmer of Microsoft be so. Then what did Mr. Ballmer think when he made the decision of acquisition?

2) This deal came after the break of Microsoft-Yahoo deal.

By looking for acquiring Yahoo, Microsoft was planning to hit Google in the front. After the attempt failed, Microsoft finally decided to attack Google from the back by acquiring Powerset. This is the real story behind the scene.

Microsoft is looking for the market of online advertisement, everybody knows it. The dominator of the market at present is Google. In order to compete Google, the fastest and also the most effective way for Microsoft is to buy the company in the second place of that market, which is Yahoo. But Yahoo defended insistently to Microsoft's acquisition. Should Mr. Ballmer then abandon the plan? No, or otherwise he must not be the Ballmer. Here thus comes the acquisition of Powerset.

3) Yahoo's SearchMonkey opened up for developers at May 15.

I have said that SearchMonkey is Yahoo's strategy to come back. Although I also predicted negative to the full success of this ambitious project (partial success is however believable), Microsoft has no patience to wait for the natural death of it.

The best way to accelerate the death of SearchMonkey is to defeat the plan directly. By acquiring Powerset, Microsoft may launch a competitive Semantic Web service for SearchMonkey. SearchMonkey itself is already too ambitious. By short of volunteered developers all over the world, the date of its failure thus could be counted. At that moment, Microsoft may go back to the table and buy Yahoo in a much cheaper value. The difference would certainly be greater than $100 million.

4) Google declines to bid for acquiring PowerSet.

In the whole story, Google's situation is quite subtle. From one hand, Google certainly does not expect Microsoft to acquire Yahoo. Hence Google would not be willing to see Microsoft acquiring Powerset.

On the other hand, however, Google does not believe in Semantic Web either. Competing price of Powerset with Microsoft is meaningless for Google. The reason is simple. Neither Microsoft nor Google is really interested in Semantic Web. Microsoft buys a Semantic Web company only to attack Google from the back. If Google attends the competition, Microsoft may just raise the bid and let Google win it. Then Microsoft can simply go for another Semantic Web company. Powerset is surely not the only one who does Semantic Web technology! Google has no chance to win this battle unless it buys all of the Semantic Web companies, which is totally nonsense for its lack of interest in Semantic Web.

I have to say that Microsoft's strategy is very brilliant. The strategy directly hits Google and Google has no effective way to fight back. Now the only pity sacrifice is Yahoo again. But probably it may beg Google to save it once more.

In summary, by acquiring Powerset Microsoft has done an excellent move towards the next acquisition of Yahoo and eventually be closer to beat Google. How would Google and Yahoo take this challenge? The story is to be continued ...


Anonymous said...

Hi Yihong,

Indeed. $100 mln is a bad consolation for Powerset investors (unless they disappointed in their investment). I'm really surprised how small the sum is.

May be it's just a bad timing for their technology...Or maybe they have some agreement with Microsoft allowing them to continue their work while having access to significant resources.

Anonymous said...

Very good analysis of the "WHYs".

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