It's clear that Yahoo is struggling against Google, and it's clear that Microsoft wants nothing more than to be important in the online services world. But the combination of these two behemoths, neither of whom have been particularly innovative with technology or customer acquisition of late, is the next AOL/Time Warner debacle.
Does anyone think that the merger of AOL and Time Warner was a success? Does the marriage of two companies that have no clear strategies ever make sense?
Microsoft hasn't proven that it can take advantage of this scale of web property and has wasted a huge amount of time and dollars with all the Live.com junk. Yes, MS should move into new markets and look to the future but Yahoo is a massive undertaking with a completely different culture.
The other big question is how long search and advertising are the holy grail. Odds are something else will come along and it will be Google or another startup that figures it out before Yahoo and Microsoft.
According to Jason Maynard at Credit Suisse, this is going to be a tough slog.
We expect Yahoo to pursue every avenue to fight the acquisition and believe the ouster of Terry Semel from the board signals that. While management is likely to pursue other combinations like Yahoo/MySpace/NWS, Yahoo/TWX/AOL, and YHOO/AT&T, as well as more exotic options, we believe that Microsoft's strategic and financial advantages will ultimately overcome management resistance, particularly in light of investor and employee frustration over the lack of strategic direction and failure to execute the company has demonstrated. However, we would not discount the possibility of Microsoft being forced to use a tender offer to move the process forward.