Microsoft and Yahoo--Is it just about Google?

Implications: Microsoft announces a bid for Yahoo! at $44 billion to compete more effectively with Google.  But that competition could be just one of several reasons for this acquisition.

Analysis: Yahoo! has been in trouble for months.  On Friday Microsoft announced an unsolicited bid of $44.6 billion to acquire Yahoo!  Google is being touted as the main reason for the deal--to combine Microsoft and Yahoo! would create a more competitive power to the dominant search engine.  But there are many other interesting possibilities.

Regarding search, while Google is the leader, a combination of the Yahoo! and MSN portals (probably favoring Yahoo! as this article suggests) makes the most sense.  The Yahoo! portal is far superior to MSN's despite its recent makeover.  Yahoo! also offers a bundle of nice features on its portal that MSN doesn't begin to provide.

A better integration of Microsoft's dominant Office package, along with Yahoo's online expertise, could reconfigure the next generation of Microsoft products.  Google continues to work towards software applications on the Internet as opposed to the desktop; creative and expanded applications between Yahoo! and Microsoft using embedded desktop software could stunt Google's plans to build an online software alternative.

Google's trouble with a poor earnings report coupled with this strong bid by Microsoft indicates great timing for Gates and company.  There may be other bidders for Yahoo!  News Corporation has had on and off discussions with Yahoo! for several years, but could still make a bid.  However, Microsoft's bid is so strong--and they have the cash on hand to pay for Yahoo! if they want--may prevent other bids.  Ironically, it is like the News Corp. bid for Dow Jones at $5 billion.  The bid was so strong no one else could touch it.  Many TV analysts were making this comparison on Friday.

Microsoft may have to sweeten the initial bid, but they are clearly in the driver's seat.  As with so many media/telecom/technology mergers, it won't be over until it is over, but it sure is interesting to ponder the possibilities of this deal, and how it may shake up the Internet and software industries.