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Originally published February 3, 2008 at 12:00 AM | Page modified February 3, 2008 at 9:01 PM

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Microsoft-Yahoo! could skip culture clash; but what about the tech-merger curse?

Yahoo's walls are awash in bright purples and yellows, while Microsoft's campus is coated in drab neutrals. Yahoo's co-founder holds the...

AP Technology Writer

SEATTLE — Yahoo's walls are awash in bright purples and yellows, while Microsoft's campus is coated in drab neutrals. Yahoo's co-founder holds the cutesy title of "chief Yahoo," while Bill Gates was "chief software architect."

Yahoo epitomizes California cool; Microsoft is still trying to get over its competition-crushing past. But the culture clash may not be as big a stumbling block to the software giant's rich buyout bid as some critics may think.

Yahoo Inc. is still mulling over Microsoft Corp.'s offer, worth about $42 billion based on Microsoft's closing share price Friday. Even if Yahoo's board and shareholders approve the takeover, U.S. and European antitrust regulators must still sign off.

Google Inc. stirred that pot Sunday with a blog post that called a combined company "troubling" from an antitrust standpoint; Microsoft followed with a statement of its own that the deal would actually improve competition.

Yahoo might appear more laid back, but the two are culturally closer than one might expect. For instance, while Google Inc. foots the bill for employees' meals, Microsoft and Yahoo both make their work forces pay in the cafeteria. And while some associate afternoon soccer and cricket matches with Yahoo's startup ethic, Microsoft's campus is dotted with playing fields.

And their similarities extend far beyond the perks.

"Yahoo is not the sort of strapping startup it was 10 years ago. It's a corporate organization with its own bureaucracies," said Charlene Li, an analyst at Forrester Research.

Microsoft, for its part, has had to tone down its competitive behavior after a decade of antitrust problems. Though its Windows operating system is on more than 90 percent of the world's computers, its perpetual lack of savvy online has also prompted it to experiment with Silicon Valley-style events, including inviting programmers to gather once a month in bean bag chairs to brainstorm and collaborate on cool Web projects.

Ali Diab, co-founder of a startup called Ripple TV, worked for both companies in the past. He said the talk of a culture clash is overblown, and noted similarities between Yahoo co-founders David Filo and Jerry Yang, and Microsoft founder and Chairman, Bill Gates, and its Chief Executive Steve Ballmer.

"David and Jerry, Bill and Steve — they're quite technical, quite astute technologists, and I think the cultures deep down still reflect that at both companies," he said. "Yahoo maybe a little more has a young, adolescent, college-like culture. But it's a third the age of Microsoft."

Diab, who reached the level of general manager when at Microsoft between 1998 and 2002, and vice president status at Yahoo between 2002 and 2006, said he didn't sense animosity toward Yahoo while at Microsoft, or vice versa — just a natural sense of competition.

But in spite of the fact that Yahoo shares its Stanford roots with Google, both cultures harbor a burning desire to beat the search leader.

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"It wasn't, 'Yeah, we're just OK with being No. 2"' he said. "We were very much intent on being No. 1 in that market."

The two companies are also not complete strangers to working together. Until Microsoft launched its own ad-serving technology in 2006, it used Overture, a search marketing system Yahoo eventually bought in 2003.

More recently, Yahoo and Microsoft teamed up to make it possible for their respective instant messaging users to chat regardless of which service they were signed on to.

Yahoo has also been one of the only companies to make use of some new features built into the year-old Windows Vista operating system. Yahoo's latest instant messaging program was constructed with Microsoft's answer to Adobe Systems Inc.'s popular Flash, a technology called Silverlight that has otherwise been slow to catch on.

All that doesn't mean Yahoo will meekly agree to be swallowed up by Microsoft, even if the combination gets them part way to their goal of toppling Google.

Even as Microsoft revamps its e-mail and other consumer Internet products, and talks about weathering the industry's shift toward computing done over the Web instead of on powerful desktop computers, it still doesn't seem to "get" the Internet. Its online services business is a tangle of competing brands and a consistent money-loser. And while Google has launched Web-based word processing and spreadsheet programs, Microsoft has taken heat for moving slowly out of concern for its desktop software cash cow, Office.

"There's a perception that the only reason MSN and Microsoft's online services have been around as long as they have is because Microsoft has other successful, cash-rich businesses with which to fund them," said Matt Rosoff, an analyst at the independent research group Directions on Microsoft. "Yahoo says, 'We made it on our own, we don't need people who have never had a financially successful (Web) business telling us how to run our business."'

While tech-industry buyouts have a less-than-stellar track record — think Compaq Computer Corp.'s 1998 acquisition of Digital Equipment Corp., America Online's 2001 buyout of Time-Warner Inc., or the rough start to Hewlett-Packard Co.'s 2002 takeover of Compaq — Microsoft may be able to shake that curse as well.

Industry analyst Rob Enderle said Microsoft-Yahoo is unlikely to suffer the culture clashes and integration problems that plagued others because Yahoo is clearly the weaker party. Some small turf battles may erupt, but the Yahoo contingent won't have much leverage.

Microsoft faces plenty of problems, between antitrust concerns and the chance Google will step into the ring, if only to raise the price and sting Microsoft.

But once the deal goes through, Enderle said, "This is an easy merger."

Copyright © 2008 The Seattle Times Company

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