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Microsoft-Yahoo deal 'preaction'

Ahead of her trip to Latin America,'s Ina Fried offers her first take on a Microsoft-Yahoo deal, just in case it happens while she's gone.

One of the big risks of heading down to Latin America right now is that something big could blow up--the Microsoft-Yahoo merger.

Rest assured, I'll be pushing on my sources even if I am a continent away. Still, the deal could break while I am asleep or something. To make sure my faithful readers are not left in the lurch, I offer my first take on the deal now:

WHEREVERTHEHECKIAM--As widely expected, Microsoft and Yahoo came to terms on a deal that will see the search pioneer absorbed by the software giant.

Although Yahoo looked long and hard, the company really had no alternative that would allow shareholders to cash out now at anywhere near the price Microsoft was offering.

Speaking of price, Microsoft did have to hike its bid to seal the bid (or didn't--you'll have to read the press release for that one). As the company pointed out during the drawn-out process, every extra dollar per share it paid added about $1.4 billion to the deal's price tag.

Ultimately, though, this deal wasn't really about price for Microsoft. It was about the fact that the company is struggling mightily to compete against Google in the market for advertising-funded content and software.

For all its challenges (and they are many), the deal was the single biggest thing Microsoft could do to bulk up ahead of what many see as an epic showdown over the next several years.

Still, the work is just beginning for the two companies. First of all, they have to secure regulatory approval. Although Microsoft faces a significant rival in Google, they have to convince regulators that they themselves will not be in a position to dominate any markets. In addition to the usual regulatory hurdles in Brussels, Seoul, and Washington, China could also pose a potential threat to the deal.

If and only if they can get past these hurdles, do Microsoft and Yahoo get to the real hard part--actually combining. Microsoft has a decent track record of absorbing smaller companies, but past deals pale in terms of the size and scope of the Yahoo move.

Microsoft will have to deal with both significant overlap as well as significant cultural differences. The company has indicated it has some plans under way already in terms of handling both issues, but wisely said it wants many of the decisions to be made by a group made up of leaders from both companies.

It is how Microsoft handles these issues that will be critical. First and foremost, such decisions are critical to retaining the very talent that Microsoft has said it is looking to acquire. The decisions on which products to keep will be based on a number of factors. One of those factors will be which product is more popular today, but I would not expect that always to be the deciding factor.

In many cases, Microsoft is not where it wants to be with its homegrown products, but has built them with its long-term vision in mind. Some of Yahoo's products, by contrast, have more users today, but are built on vastly different technology, much of it based on open source.