Microsoft's bid for Yahoo: the risks

So, now we know how Microsoft plans to fight Google's growing Web hegemony.

Their plan isn't solely to come up with their own Internet offerings. They're going to buy their way to Web 2.0.

It's an intriguing strategy, offering the potential of marrying Microsoft's desktop market share with Yahoo's #2 Internet brand.

I don't see how either alone would be able to catch up. Google adroitly leveraged its search leadership to vault into online advertising, all while managing to come up with other groundbreaking applications such as Google Earth. They now look to be pioneering the next wave of social networking by coming up with a standard for apps to interact.

Wads of cash and a near desktop monopoly won't be enough to catch up in the fast-moving Web 2.0 world.

"These Internet markets are winner-take-all markets and they cannot be built. Time is too valuable," Laura Martin, an analyst at Soleil-Media Metrics in New York, told Reuters.

But make no mistake, this is a gamble. Whether fairly or not, Microsoft is viewed by some as a stodgy, non-innovative technology brand. The bid for Yahoo! can easily be seen as an admission by Microsoft that it can't succeed alone now that the Web is increasingly important vis-a-vis the desktop. If their bid for Yahoo! fails, where does that leave them in the battle for next-generation users? That may be one reason Microsoft is offering such a premium over Yahoo's stock price.

If Microsoft's $45 billion bid for Yahoo! succeeds, there's also the non-trivial challenge of merging corporate cultures. One one side, you've got a Web firm that boasts it "powers and delights our communities of users, advertisers, and publishers - all of us united in creating indispensable experiences, and fueled by trust." On the other, there's a company that wants to disable your software if you can't prove it's legal.

Finally, there's the question of whether merging the leader in a previous generation of technology (think Digital Equipment Corp. as the world moved to PCs), in this case the desktop, with a #2 company in the current generation can somehow outduel the current #1.

But to their credit, Microsoft realized that going it alone would be an even bigger risk.
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