A few weeks ago, it was Sony. Now Yahoo. What next?

As seen at WSJ.com - Heard on the Street, Microsoft and Yahoo may been looking to do something together. There are two speculations offered: that Yahoo would buy MSN, with Microsoft being a minority holder; or that Microsoft could buy Yahoo.

Let’s first look at the idea of Yahoo buying MSN. As reported in the recent Microsoft earnings report, MSN fell into the red, and its revenue declined. Additionally, while the US online advertising rose nearly 30% to $12.5 billion last year, MSN lost ground. This is not the type of business which *I* would be looking to buy. To mimic my high-school soccer coach, my 9-year old daughter can figure that one out. Really. I have no idea what the term-sheet for MSN would look like, but I just don’t buy failing businesses, except for their assets and customer base. Yahoo already claims to have 100-million plus members, so they certainly don’t need the customer base. And while Yahoo is not beating Google, they seem to be holding their own, and rolling out upgrades to their product line. Microsoft’s Ad-Center product launch is imminent, but it remains to be seen if it will handle the load of potential customers, not to mention whether it will be useful for anything. I’ve seen much of their web interface, and not only is it IE-specific (who’da thunk?), but the coding looks like something my 6-year old would have done. I think that most kids on MySpace could have done better. Yes, it does some nifty AJAX-style manipulation of the content, but it takes more than that to make me go “Ah”. If anyone uses it and looks at the page source, they will see that someone used a RAD tool and never bothered to name anything. Some might say that its typical Microsoft, but I have to hope not.

Second option–Microsoft buying Yahoo. Microsoft’s current market capitalization is $68.18 billion. That is a pretty respectable number. I wouldn’t mind my company having that kind of valuation. However, Yahoo has a market capitalization of $45.77 billion. Beyond the point that Jerry Yang would lose his yang rather than sell to Microsoft, I can’t see Microsoft buying a big enough stake in Yahoo to make a difference. If we were to examine all of the acquisitions that Microsoft has made in the past 5-years, we’d see that they just don’t do large acquisitions, at least not large compared to Microsoft.

Lastly, although I did not mention it at the top, there is the possibility of a merger of almost-equals. Who would want that, and what would it be called? MicroHooey? The cultures at Yahoo and Microsoft are so widely divergent that they make Mars and Venus look like twins. I can just see Yahoo trying to replace its BSD servers and PHP pages with Windows Server 2003 and ASP.Net. The HotMail debacle would be a rosy memory in comparison. And who wants Mr. Ballmer throwing charis at Yahoo?! Yahoo is far too cool of a workplace to have that.

This brings me to my last thought. I looked up the market capitalization of Google. With a $117.27 billion valuation, it could buy both Microsoft AND Yahoo, and still have plenty of money left over. Google has proven that its current stock value isn’t a fluke or IPO frenzy. Please Eric, don’t do it.