While some analysts believe the price tag for Yahoo may be beyond even Microsoft's cash roll, others are not so sure the software giant is willing to sit on the bench and watch Google win the ad revenue game.Was $80 billion too little for Yahoo? If you believe a recent story in the LA Times, as many stock buyers appeared to have, that was indeed the case.
But would such a deal really make sense for the Windows giant?
Dan Kusnetzky, IDC vice president for system software research, can't see it.
"Since Microsoft is already presenting MSN in that space, I don't know what benefit they would get by acquiring Yahoo," said Kusnetzky.
Gordon Haff, senior analyst for research house Illuminata Inc., agrees and elaborated on why the deal wouldn't make sense.
"With a market cap of over $58 billion, Yahoo would be a huge acquisition for even a Microsoft—both in terms of money and integration," said Haff.
"While it's true that Microsoft has done a basically piss-poor job with MSN over the years, I seriously question whether a Yahoo purchase would be a practical way to re-bootstrap its online presence," Haff said.
Laura DiDio, however, can see reasons why Microsoft might pull the trigger on a Yahoo acquisition.
"I think Microsoft has to make a dramatic move, and I don't rule anything out," said DiDio, the Yankee Group's research fellow for application infrastructure and software platforms.
"Whatever anyone thinks of Microsoft, Bill Gates and Steve Ballmer, no one would deny that they are fierce and committed competitors," she said. "In Google, they face the strongest, richest, most edgy competitor they've seen in a generation. [Google co-founders] Larry [Page] and Sergey [Brin] are, in some respects, younger versions of Steve and Bill.
"At the very least, Microsoft has to be rethinking its timetable for the release of the Microsoft Live products. Google's aggressive moves and the overarching perception among the financial and industry analysts and the media that Google is the 'IT' company and Microsoft is falling further behind dictate that Microsoft initiate a bold move of its own. That may or may not be Yahoo. But the list of potential online Internet/search engine companies that Microsoft can purchase outright, acquire a stake in or partner with is pretty short," DiDio said.
"Ballmer has made it clear from recent public pronouncements and the ferocity with which Microsoft fought [and ultimately failed] to buy a very expensive stake in AOL, that it would like to buy search engine/online content/online advertising expertise. This hasn't happened so far. I would look for Microsoft to jump-start its own Microsoft Live initiatives, retool MSN and still try and buy something. Yahoo is not out of the question. It's highly improbable that Microsoft executives will sit back and let Google do to them what Microsoft did to so many of its competitors," she said.
Stacey Quandt, an Aberdeen Group Inc. research director, can also see it happening.
"Microsoft was late to take advantage of the Internet, and MSN has never lived up to the promises envisioned. The expectations for Google's growth and its relationship with AOL make Yahoo an appealing acquisition target for Microsoft," said Quandt.
A better question is, Can even Microsoft afford the deal?
"Yahoo has a market cap of $58.4 billion and Microsoft has a market cap of $286 billon, so in theory Microsoft could buy them. Microsoft could probably purchase a controlling stake for $30 billion, but it would reduce cash on-hand by at least 75 percent. Yahoo would be an expensive acquisition for anyone including Microsoft," Quandt said.
"The risk to Microsoft is that the purchase of Yahoo would be a major investment in Web content and a potential distraction. At present Microsoft has focused more on Web services than Web content," she said.
"However," Quandt continued, "Microsoft needs to find new avenues for revenue and can no longer expect this to come primarily from traditional avenues such as the operating system and Office applications."
Check out eWEEK.com's for Microsoft and Windows news, views and analysis.
Web Design 
