Is Microhoo! A Good Idea?

IT'S A GREAT IDEA!

Microsoft needs a delivery system for SaaS. The Redmond giant's license-based, client software distribution model is by no means obsolete yet, or likely to be any time soon. But the writing's on the wall -- etched there by the rise of virtualization, online social networking and Software as a Service -- future business opportunities lie in new software delivery systems, not old ones. With Yahoo!, Microsoft would immediately own arguably the second-biggest Web platform in the world from which to start reinventing its distribution model. Add in Yahoo! assets like Flickr, and its IM and music services, and Microsoft suddenly has a whole lot of weapons to take on Google. Take that, Founders!

A Microsoft-Yahoo! deal would be AOL-TimeWarner redux, only with the merger actually making sense for both companies. When Time-Warner and America Online merged back in 2000, old media wasn't as dead as New Economy evangelists preached, nor was the online business model anywhere near to developing sustainable revenue streams. Result: Bad times for Time, which was forced into a $99-billion goodwill write-off in 2002 after AOL's value dropped drastically after the Dot-Com bubble burst. Fast-forward six years, and the landscape's entirely different. Gone is the New Economy jive -- online businesses can and do make lots of money. Microsoft, by sitting back and waiting out Tulipmania the last go 'round, is now in the position to make its big Dot-Com move when it matters.

Having a giant pile of money is no good if you're not going to spend it. Everybody knows that Microsoft's big advantage is its Fort Knox-like cash reserves, which give the company a fighting chance to play catch-up with new technologies even when it falls behind faster movers. But the flip side is that sitting on a lot of money tends to make even one-time, world-class risk-takers pretty conservative. Why run down to the acquisition pasture for a quick one-off when there's plenty of time to walk down and acquire it all at some theoretical time in the future? The danger for a company like Microsoft is that it never gets off its pile at all, and the world passes it by. Yahoo! may not be the perfect deal, but what deal is? Besides, it's as cheap as it's going to get and still be a viable acquisition for Microsoft.

IT'S A TERRIBLE IDEA!

Microsoft shouldn't be diverting even more of its resources away from the channel. On its face, Microsoft's bid to acquire Yahoo! is about boosting the software giant's online advertising profile. But Microsoft just finished shelling out $6 billion for Acquantive, for essentially the same reasons. The fact is, Microsoft hasn't done online well in the past, there's no reason to think it will even with the acquisition of a second-rate search company, and the company ought to stick to what actually makes it lots of money -- providing partners with a channel program that's second to none.

Didn't Microsoft finally put all that monopoly stuff behind them? Can you imagine what happens if Microsoft acquires Yahoo! and the resulting app-topus successfully corners both the software-in-a-box and the SaaS markets? If you thought Microsoft's past legal entanglements were messy, wait until you get a load of the anti-trust investigations into Microhoo! Steve Ballmer's head, always at risk of exploding anyway, would actually do it this time.

Spending your giant pile of money is no good if you spend it stupidly. Forgive us for the sneaking suspicion that Microsoft wants Yahoo! not because it particularly likes Yahoo! but because Google isn't available. Sometimes it makes sense to acquire a market also-ran. Other times, you wind up with Veritas.