Youhoo, Microsoft... I'm Over Here ^.^

By M. David Peterson
June 24, 2008

*Finally* a "deal" that would make sense for both Yahoo! *AND* Microsoft. At least let's hope that's what becomes of the latest Microhoo! breakup makeup:

They are once again speaking to each other, as first reported on Monday. Several sources tell CNET that the latest talks involve a deal short of an acquisition.

"I can tell you categorically that's not happening," one source familiar with the situation said of the possibility of a full-on acquisition.

Another source pointed out that Microsoft's latest statement remains true--basically that Microsoft is not interested in a full purchase but remains open to talking about a search deal.

So what I mean by "At least let's hope that's what becomes of the latest breakup makeup" is quite simple:

* Microsoft needs to bolster its online ad presence.
* Microsoft has cash money cash... And *LOTS* of it. More than even Google's clean green money printing machine can generate -- by a *HUGE* amount. At least at the moment.
* Yahoo! needs to generate more revenue.
* Google generates more revenue for search ads -- by a *HUGE* amount -- than does Yahoo!, Microsoft, and as far as I know, every other company on the planet.
* As such, an advertising deal with Google looks oh so appealing -- at least for the short term -- to Yahoo!
* But as was their fear back in January when they declined a partnership with Google, just such a deal will hurt them -- if not destroy them -- in the long term.

The solution: Microsoft purchases the advertising rights for Yahoo! Search for enough cash to offset the difference between what Google would be able to pay them and then works with Yahoo! -- potentially in a newly created 50/50 owned advertising company -- to build an advertising platform that can compete directly with Google. Just such a deal would allow MSFT to continue forward building and extending the Live (Search, etc.) platform w/o attempting to integrate Yahoo! into the mix, Yahoo! continues to be Yahoo! -- competing directly with both Google and Microsoft -- and after a specified period of time or after a particular set of goals have been reached (e.g. the newly created advertising platform is considered competitive with Google) Yahoo! gains back control of their ad sales. Everyone wins -- except for Google -- which, beyond the obvious need to enhance ad sales -- is precisely what both Microsoft and Yahoo! are in need of.

What do you think? Is this -- or something similar -- what is meant by "the latest talks involve a deal short of an acquisition."? Obviously I can't say for sure, but it sure seems to make a lot more sense than any sort of acquisition -- whole or part -- would make.

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