A Messy Marriage

As for other potential rivals springing up to mount a fight, none come to mind. Just as Rupert Murdoch smothered potential competitors with the size of his bid for Dow Jones, Steve Ballmer has done the same here. $44.6 billion is a lot of money to any company, but especially to media outlets these days.

The New York media types who witnessed the disaster of the Time Warner-AOL deal up close will be loath to recreate it. News Corp., which has seen success with its purchase of MySpace, may sniff around, but will ultimately avoid a proxy fight with Seattle. With the acquisition of MySpace, News Corp. owns the future of the Web: personalized, social. Why buy a Web portal—the online equivalent of a newspaper, a relic of the past?

Google could potentially step up, but for what? They have a commanding lead in the online advertising business as it is. Even American trust-busters would have a hard time swallowing this idea. A bid here seems unlikely as well.

No, the biggest threats to a Microsoft-Yahoo deal are Microsoft and Yahoo. Microsoft forecasts the online advertising market will nearly double in the next two years, during which time the company also believes it can drive down costs though economies of scale. But combining these two legendary bureaucracies, no matter what the synergy looks like in a press release, will be a nightmare in the already confused corridors of Santa Monica, Seattle and Sunnyvale.

As we pointed out earlier this year, Microsoft's culture is slow and cautious—and that's the last thing Yahoo needs an injection of right now. While Microsoft howled after Google snapped up online advertising specialist DoubleClick last year for $3.1 billion, that's just the latest opportunity Microsoft has missed. In 2005, Google beat out Microsoft to buy a stake in AOL. And while Microsoft carped after the DoubleClick deal, Yahoo rolled up its sleeves and snapped up the 80 percent of Right Media it didn't already own.

Of course, Microsoft often moves slowly for a very good reason: It doesn't want to cannibalize its cash cows. While Google can launch online spreadsheet and word processing applications, Microsoft can't respond without damaging its powerful Office software business. Elsewhere, it's more of the same: Everywhere Microsoft makes money, the Web poses almost intractable dilemmas.