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Two Battered Behemoths, One Bold Bid

Many online pundits see Microsoft's move on a vulnerable Yahoo! as a bloated bungle, but some say the combo would be formidable

Even in the know-it-all blogosphere, tech industry commentators were taken aback by Microsoft's (MSFT) unsolicited bid to acquire Yahoo! (YHOO). Though the gossip mill has long speculated about such a marriage, no one predicted it would happen so soon.

While investors frowned upon the offer—Microsoft shares tumbled 6.6% on Feb. 1 to $30.45—the tech world was split on whether the deal would mean a brighter or dimmer future for any agglomeration of Microsoft and Yahoo.

The Pessimists

There's plenty of critique of the potential deal. BusinessWeek media columnist Jon Fine, for one, says a takeover wouldn't produce miracles for Microsoft. "Ah, Microsoft-Yahoo," he writes. "It's truly touching to me how companies are forever believing that if you mate two dogs, you can make a pony." Why not? For Microsoft to succeed it would have to own traffic—not just ads. "Microsoft's got a long and rocky history when it comes to playing in the content space," says Fine.

Aaron Katsman at AOL's (TWX) also sees potential management troubles—not to mention shareholder pain—if Bill Gates' baby absorbs the troubled Yahoo. In his entry, titled "Microsoft—What are you thinking?" Katsman asks: "Why pay 60% more than the market price for a company that admittedly has all kinds of problems and no one else wants?" He also predicts troubled days ahead for Microsoft stock: "Just when investors had thought they may just make some money with their Microsoft stock, this news comes along."

Andy Beal at Marketing Pilgrim has a similar take: "Will buying a company that has failed to stand up to Google (GOOG) in any way help Microsoft, which has equally poor performance? Do two losers make a winner?" Beal also notes the potential for one big, unhappy Redmond-Sunnyvale marriage if the deal actually goes through.

"[T]his could become a hostile takeover very quickly," Beal writes. "Microsoft CEO Steve Ballmer is already taking shots at Jerry Yang et al's attempts to revitalize the company, saying, 'A year has gone by, and the competitive situation has not improved.'"

Others figure regulatory hurdles will doom a marriage. "If anyone thinks the Microsoft Corp.-Yahoo Inc. deal is getting past the EU regulators, they're crazy," writes John C. Dvorak of Dow Jones' (NWS) MarketWatch. Joseph Weisenthal of, echoes such regulatory worries: "Expect regulators to take this purchase seriously, particularly on the other side of the Atlantic."

Other analyses are downright damning—both of the potential deal and of the tech industry generally. "Coupled with [Thursday's] disappointing earnings report from Google, the dealmaking points to a new phenomenon: the first economic slowdown of the Web 2.0 era," writes's Daniel Gross. "The darkening outlook for online advertising and e-commerce…is likely behind Microsoft's bold bid for Yahoo."

Meanwhile's Jeff Jarvis calls Microsoft and Yahoo the "dinos" of tech, compared to Google and its powerful open-sourcing model. "Will this be big enough to beat Google? No, because big won't win in the end," Jarvis said. "Open will."

The Optimists

But optimists can be heard above the din. They largely contend that bigger will have to be better. A posting from TechCrunch's Duncan Riley (which begins simply with, "WOW") says Microsoft plus Yahoo equals a stronger competitor against the Google empire.

Joe Apprendi, CEO of ad network Collective Media, agrees: "Microsoft and Yahoo combined in terms of display advertising could represent about as much as Google in search." Danny Sullivan at Search Engine Land, not so surprisingly, echoes the "more search the better" mantra: "Search is important, and Microsoft has failed to build, much less maintain, search share while Yahoo has held steady against Google."

Standard & Poor's software analyst Jim Yin also weighs in on the positive side: "We view this acquisition positively because it would help Microsoft compete more effectively against Google in search engine and online advertising. Although the merger presents integration challenges, Microsoft identifies $1B of synergies in areas of online advertising yield, capital expenditures, and research and development." (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

Forrester Research (FORR) analyst and Vice-President Charlene Li says size matters for another reason: social networking potential. "Social computing loves scale," she writes. "With a combined audience, and the potential of leveraging their base of e-mail and instant-messaging users, [Microsoft and Yahoo] could overnight create one of the largest socially connected audiences online and become the foundation for an 'open' social graph." She says after nabbing Yahoo, Microsoft could next eye Facebook.

The Motley Fool sees the potential takeover not so much as the road to a sparkling future, but as the only path to survival. "Microsoft is offering to put Yahoo out of its misery," reads the site. "Yahoo has no near-term savior other than Microsoft. The catalysts aren't coming, and neither are rival suitors…. Cry all you want, Yahoo, but it's Mr. Softy or bust."

That is, unless another bidder joins the fray, writes blogger and former tech stock analyst Henry Blodget in his post, "Hold Everything! We may Get Another YHOO Bidder!"

Rumor has it that an unnamed major private equity firm, along with New York-based Quadrangle Partners, could also be in the running for Yahoo, according to Blodget. He says that since Yahoo was blindsided by Microsoft's offer, the company could be looking for an escape route: "A deal with either of these firms would look very appealing."

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