The Inevitable Alliance: Microsoft & Yahoo!

Most of us knew this day would come. And today Microsoft made an offer to buy Yahoo! for $44.6 billion.

It was rumored last year that Microsoft and Yahoo! might need to join forces to fight against the great multi-colored Google. With Yahoo!’s dropping stock and guaranteed job cuts in the near future, Microsoft was smart to say, “It must be now!”

Yahoo! still has several good things going for them. They are still the heaviest trafficked web property. Jerry Wang hasn’t even had a full year back at the helm since Terry Semel stepped out, although we haven’t heard a lot of action items from Jerry. Panama was received fairly well to the advertising universe, but there have been complications along the way.

Microsoft has been slow to gain search share. The switch to MSN Live never proved to be anything special except a new graphical interface. Updates to the advertising interface have been few or far between. Come to think of it, Microsoft hasn’t done anything memorable except their initiative to start buying up online advertising companies. At least they’re keeping good on that!

What abilities will these two have if they are combined? Microsoft has amazing amounts of capital and technical resources to become a great search power. Yahoo! already was that great search power at one time and maybe needs the “shot in the arm” that President Bush is hoping with his tax benefit plan. Being the currently most trafficked web property must have some leverage-ability in the marketplace. But, do either Microsoft or Yahoo! know how to correctly exploit it?

I strongly believe that if Microsoft and Yahoo! were to become one, the key to being successful and challenging Google will be innovation. The Internet was founded on being innovative and innovation is what powers it still today. Microsoft and Yahoo! have never been on the same level of innovation as Google and in order to compete they’ll need to get there.

Watch the CNN Money story on Microsoft’s bid to buy Yahoo.