microhoo-quote-unquote-logo… and that is an understatement. A recent series of actions by Yahoo are all designed to either force Microsoft to up their current unsolicited bid or make the entire plan unpalatable, ending with Microsoft walking away.

For a summary of all the latest twists and turns, read Henry Blodget over at the Silicon Alley Insider.

Apart from engaging in talks with Time Warner and other potential, yet much less realistic "white knight" buyers, Yahoo has been running tests with Google on farming out ad placements through their arch-rival. Shrewd analysis via CNET on this is well worth reading:

What Yahoo’s Google gambit says about the failure of ‘Panama’.

The numbers don’t lie, and these actions speak much louder than any words could: Yahoo cannot compete in paid search ads (Google Adwords) or paid content ads (Google Adsense). 

And neither can Microsoft.

Both are failing to make any serious inroads into Google’s dominant leadership positions in search and ad services. If they had read their Ries & Trout ("11 Immutable Laws of Marketing", etc.), they could have known BEFOREHAND that this was never likely to really work for them.

The way to beat the market incumbent is never to try and go up against them on their turf, it’s to create a whole new market that will eventually obviate or at least cause serious attrition in the incumbent’s market.

Guy Kawasaki calls this "jumping to the next curve", making your offering not 10% better, but 10 TIMES better. Creating a whole new market that wasn’t there before through innovation.

Will this deal sink both Yahoo and Microsoft?

Over at the Alley Insider, Henry Blodget has produced some very keen analysis on why this proposed combination of Microsoft and Yahoo is such a bad idea:

The Microsoft-Yahoo combination is going to be a disaster.

And I’ve laid out previously how the law of complexity has been at work against Microsoft for a long time. The same logic applies to Yahoo:

I have gotten detailed descriptions from inside Yahoo that prove how bureaucratic, hierarchical, and slow Yahoo, the once nimble Internet start-up darling, has gotten, all of which preclude the hungry sort of innovation that is necessary to accomplish these jumps to the next curve.

So joining the two juggernauts into one operation is the equivalent of having two huge battleships collide at about a 45 degree angle and hoping that somehow during the collision they will weld themselves into one aircraft carrier. Ain’t… gonna… happen…

Perry Marshall recently said it even a little more provocatively somewhere (rough quote): It’s as if two kids with a 75 IQ decided that together they could go to the Spelling Bee and win against the 150 IQ kid.

Instead what would likely happen if the deal goes through, is that Microsoft will quickly ruin the one thing that Yahoo still has going for them, which is the sheer number of eyeballs on their Web properties. This state of affairs being a remnant of the Internet wave 1.0.

Microsoft will begin combining the (ubiquitous) overlapping services in order to save costs (and will falsely call this "synergies"), and will likely inject each property with annoying, overly corporate/dry, or both, "features" and attributes (they are masters at this), which will drive the eyeballs away in droves.

Bye bye Yahoo Mail, Yahoo IM, maybe even flickr and MyBlogLog. None of this is even fully taking into account the steep cultural and technology differences between the two companies BTW.

So if size and the complexity that comes with it tends to be so pernicious to companies staying nimble, how is it that Google can manage to avoid many of these issues? The answer is… complex:

First, their non-traditional approach to hiring, teams, and free-creation time lead to very flat hierarchies and retention of that hungry, start-up spirit, to a point.

Secondly, Google has been very quick to buy up emerging Web 2.0 properties, and avoiding excessive meddling, exactly the sort of thing that is to be most feared in the case of the "Microhoo" hostile take-over.

Shareholders from both Microsoft and Yahoo should loudly protest the idea as currently proposed. And if it does ultimately happen, take their money and run… fast.

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