What can you do with $44.6 billion?¹

You can fill the California state budget deficit three times over.

You can buy 7.8 Steve Jobses (according to his 2007 net worth).

You can buy nearly 111.8 million iPhones (before tax).

Or you can buy a struggling dot-com pioneer.

If you’ve been following the news lately, you already know which option Microsoft chose. Me? I would have chosen the iPhones.

So what do I think of the Microsoft-Yahoo buyout proposal? This could get very messy very quickly.

Dollars and cents

In buying Yahoo, Microsoft would burn through just about all of their cash on hand. While any large buyout or merger carries the risk of failure, Yahoo’s failing fortunes as of late makes me question the logic behind this move. According to their latest earnings report, Microsoft’s Online Services Business division is still losing money, and the losses have actually deepened over the same period last year.

So Microsoft’s online services are struggling. Yahoo is struggling. I’m confused. How is taking on a company with similar problems is going to help Microsoft?

Platforms

How is Microsoft going to incorporate a company based on open-source solutions into the fold? After all, the rest of the company runs Windows and Windows-based servers. The only way I see Microsoft making this work is if they take a hands-off approach and let Yahoo be. Let it be! 

Competition against itself

How will Microsoft deal with the fact that, once again, the company would be competing against itself? Microsoft currently has its MSN brand and WIndows Live brand for online services. If Microsoft absorbs Yahoo, they will have a third brand to incorporate somehow (not counting Flickr, Del.icio.us, etc...). Microsoft currently uses the Live brand for search and maps, and the MSN brand as their general portal (Why they haven’t done more to bring the two brands together is beyond me). Adding Yahoo into the mix will add a third brand into the mix. Knowing how Microsoft has had Microsoft-run music stores and DRM schemes competing with each other in the past, there’s the possibility that Microsoft could do the same with Yahoo, MSN, and Windows Live. A more reasonable approach would be to merge everything under one brand name, preferably Yahoo. That doesn’t sort out any possible platform or other technical integration issues, though. I’ll leave that to Redmond’s best and brightest.

Regulators

Even though Microsoft doesn’t dominate the online services market (not like a long shot), Microsoft’s history won’t bode well as it tries to get regulatory approval for any such merger. They might be able to get it past the more-business-friendly FTC of the Bush Administration, but the EU? Ha! Forget it. My money’s on Microsoft being forced to sell some properties if they want to get the deal through.

Customer backlash

Turning off customers may or may not be a big deal. Most people probably just don’t care as long as they get their email! I know that if Microsoft buys Yahoo, they’ve just lost the whole anti-Microsoft crowd (although many have probably already fled to Google). I think the big test would be to see what happens if there’s a major transition and things don’t go smoothly. Will MSNdows Livehoockr.us² experience technical and reliability issues in a transition/merger? And if so, will it turn customers off?

Overcoming Google

This will be the biggest roadblock, without a doubt. I don’t see this deal really hurting Google in any major way, over the long term or short term. Will the same stale ideas employed by Microsoft and Yahoo (Flickr and Del.icio.us aside) really do any good against the Google juggernaut? Maybe, but I’m not convinced. I simply don’t see this proposal giving Microsoft the competitive edge. And maybe Microsoft isn’t destined to dominate search and online services the way they dominate the desktop.

Consider this: Microsoft was very effective at making “Windows” synonymous with computing. The problem for Microsoft is that “Google” has become synonymous with web searching. Once that happens, I think it’s very hard to make big gains in any market. Just look at competitors to the iPod. And just look at the Mac; it’s taken Apple years and years and years to finally reagin any momentum in the desktop market. Microsoft may ultimately be locked into a similar battle with Google.

At best, Microsoft may make some gains, and may end up surprising people. At worst, Microsoft could end up with an AOL Time Warner-type disaster on their hands. In reality, I think the outcome will fall in between, with Microsoft basically taking over where Yahoo was, but not making much of an assault on Google.

I simply don’t see how buying Yahoo would really turn the tide.

Yahoo may help, but as it stands today, this is not a war Microsoft can win.

¹All currency in US dollars. Yes, I know it’s weak, but so it goes.↩
²Isn’t that an awesome name? ↩