Should Microsoft (MSFT) Buy Yahoo (YHOO)?

Contributed by mm | October 22, 2006 10:09 PM PST

Now that MSFT is at multi-year high and YHOO is at multi-year low, it makes perfect sense for the Bill/Steve Co. to buy out Yahoo even with a premium. How can Microsoft unseat Google (GOOG) otherwise?

From WSJ:

Microsoft Corp.'s fiscal first-quarter earnings, due out Thursday, will highlight a tough choice facing Chief Executive Steve Ballmer as he tries to make advertising a bigger source of revenue: Should he buy growth?

For three years, Microsoft has made a concerted effort to tap the lucrative flow of online advertising, the force behind Google Inc.'s amazing ascent. After passing on a chance to buy online-ad specialist Overture Services Inc. in 2003 (Yahoo Inc. nabbed it for $1.4 billion), Microsoft decided to build its own version of the service, which links advertisers with Internet-search results.

That decision fit Microsoft's time-tested approach of building its way into competitiveness -- and dominance -- in so many markets. But internal development takes time, and money.

Microsoft's online unit may have gone deeper into the red during the quarter ended Sept. 30, even as Google on Thursday posted a 92% surge in net income for its third quarter. Spending on developing services could likely leave the Microsoft online division with a loss of $947 million for the full year ending June 30, 2007, estimates investment house Sanford C. Bernstein & Co.

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