Yahooligans at the Window

Still, there is no guarantee that the combined search efforts of Microsoft and Yahoo will make more headway against Google than the companies did competing separately. Both Microsoft and Yahoo have been engaged in full-tilt efforts for years to improve their search engines and the ad platforms that draw money from search. Both insist that their search results are every bit as relevant as Google's, and pull out studies to bolster their claims. Yet Google keeps extending its lead. Clearly neither company is employing the minds that will bring down Google—so why would getting those minds together work any better? In the short term, there will also be the time-consuming and difficult job of merging the two search teams. Microsoft cites its recent acquisitions of the advertising company aQuantive and the voice-recognition firm Tellme as proof it can deftly integrate outsiders, but blending in the freewheeling "purple lifers" of Yahoo is going to be more of a challenge.

It's true that the merged search engines might be able to take advantage of a more powerful and efficient infrastructure of data centers, but that in itself isn't going to draw traffic. As far as the consumer is concerned, of course, the merger means less choice in search, as the second- and third-place engines behind Google would now be a single entity.

After announcing the proposal, Microsoft's Ballmer sent a missive to all Softies crowing about this "major milestone." Yet despite his ebullience, the Microsoft Yahoo takeover is a feel-bad story. The move is a $44.6 billion admission of utter failure in Microsoft's efforts to fight Google on its own.

The really depressing part of the tale is the fate of Yahoo, which at one time was one of the more enchanting entrepreneurial narratives of the Internet age. In 1994, Stanford grad students Jerry Yang and David Filo came up with a novel idea to classify the exploding number of sites on this newfangled thing called the World Wide Web. They named it "Yet Another Hierarchical Officious Oracle," wisely choosing to shorten this to its acronym. Yahoo got $1 million in venture capital and was among the first to accept online advertising. In 1996, it became one of the biggest Internet IPOs. During the peak of the boom, it was worth more than $100 billion. At one point Yahoo used the search technology of a company founded by slightly younger Stanford graduate students named Sergey and Larry (oops).

After taking a hit in the dotcom bust, Yahoo hired former Hollywood studio head Terry Semel, who helped bolster Yahoo's numbers but failed to respond to Google's search lead. This led to his departure last year, and Yang's return to the helm. At the Consumer Electronics Show in January, Yang promised an overhaul. But quarterly results released last month were so dismal that the stock price tumbled.

This made it a no-brainer for Microsoft to revisit its attempts to capture the treasure of a fabled Internet power. Yang could not have been surprised to see who was calling.

With Martha Brant in Washington, D.C., and Brian Braiker in New York

© 2008