Would a Microsoft-Yahoo deal out Google Google?

Bid is riddled with pitfalls and benefits, analysts say

Apple and oranges

Dana Gardner, an analyst at Interarbor Solutions, said the potential acquisition is a "risky bet" for Microsoft because the two companies have fundamentally different technological heritages. Microsoft is based on its Windows infrastructure, while Yahoo is built on open-source software and open standards and has even led the way in open-source circles on a variety of projects.

"Fundamentally, we've got apples and oranges for their infrastructures and their philosophies for how to approach software," Gardner said. In addition, Microsoft is fueled by revenue from software licensing while Yahoo revenues almost entirely come from advertising sales, while both companies have very different internal cultures, he said. "These are things that are going to take time" to resolve, he said. "Anytime a merger of this size, US$45 billion, comes up, it's not good. Sometimes size is too much to overcome."

Another potential problem, he said, is that many corporate IT managers may worry about such an acquisition because it takes Microsoft's focus farther away from its longtime central role of providing needed software to corporations and consumers.

With this offer, "Microsoft is betting itself on search," Gardner said. "And if you're betting the company outside your normal area, then as a CEO [who relies on your software], that would leave me concerned."

The offer made Friday "does sort of smack of desperation," Gardner said. "It would have made more sense a few years ago to have done a merger with Yahoo, but this is an unsolicited bid. It really seems Microsoft waited for Yahoo to be on one knee [financially] in what needs to be a friendly acquisition" for it to succeed swiftly. "That's why I think its risky."

Where would the deal leave Microsoft?

"It's like a multiheaded dragon," Gardner said. "You don't really know what it is. As an IT buyer and user, you might not know what to expect from them in the future. Users want companies that are there for them. I think it's going to help IBM. I think it's going to help Apple. It helps muddy the waters in a way that Microsoft competitors can take advantage of."

Guy Creese, an analyst at Midvale, Utah-based Burton Group, said the offer comes from Microsoft as a response to a changing search marketplace. "It's not a knee-jerk reaction to it, but they are saying 'OK, how do we win?'"

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