I consider this a must-read to get yourself back up-to-date on everything that has transpired over the past 3+ months behind the scenes, while we were all busy watching something else, the global financial melt-down, say.

It is almost precisely 1 year and 1 month to the day that Microsoft first launched its unsolicited buy-out bid, and you know the endless back-and-forth that ensued. What stands out is that as of today, while Yahoo’s stock has fallen from its pre-offer price of about $19 on 2/1/2008 to about $12 (and Jerry Yang was so maligned for not taking Ballmer’s offer that he ultimately resigned a few months ago), Microsoft’s stock has gone from $32 to now around $17 during that time!

If you do the math, that’s worse than Yahoo’s stock has done. So who still wants to argue that Ballmer would have really been much better at steering Yahoo (or really worse: the combined Micro-hoo “Franken-carrier”)? Which brings me back to the headline, and this quote from Blodget’s post that sums it all up very neatly:

Another six months of Microsoft Internet futility.  Last summer, Microsoft had been struggling to succeed online for 13 years, and it had only managed to run a distant third.  Now it has been struggling for 13 and a half years.  The company’s Internet branding, strategy, and organization is in its usual chaotic disarray.  Perhaps the new search head, stolen from Yahoo, can cut through the bureaucracy and fix everything.  After 13.5 years of a lot of talent and money being thrown at this problem, however, we wouldn’t hold our breath.

So the saga continues. The patient (Micro-hoo) indeed isn’t completely dead yet… but Yahoo’s new CEO Carol Bartz now appears to have the upper hand in any negotiations from here on…

Note: In case you don’t recall how badly Microsoft’s branding in particular has been going, refresh your memory here. Branding is where it all begins, after all, how can you know what you should be doing if you don’t know who you are?! And hoping that an engineer like Lu, however talented, is going to fix branding and related woes is simply delusional.

You might also enjoy this post on complexity, and why even the 800 Pound Gorilla such as Microsoft cannot avoid it’s pernicious effects.

Such as the fact that Yahoo’s stock has been declining dramatically over the last few weeks, falling through a relatively steady support level around the $19 mark that it had stood at on January 31 of this year before the beginning of the "Micro-hoo" attempted hostile take-over saga.

Having already slid a few more dollars from a range around $21 after the regulatory headwinds to the Yahoo-Google search ad serve outsourcing deal started picking up, it then fell through various support levels all the way down to as low as $15.50 (settling at $16 for the week). I don’t mean to bore you with stock market speak, this is only to get across the increasingly precarious situation that Yahoo finds itself in:

1) I have argued repeatedly that the entire Micro-hoo saga would take a severe toll on the productivity at both Yahoo AND Microsoft, and judging from the dearth of useful roll-outs and even mere announcements (and I doesn’t take much to keep Wall Street happy with announcements) from either company, I was right.

Steve Ballmer has claimed that the Yahoo purchase attempt had been just a tactic, and that Microsoft could go it alone, but since then he really hasn’t said much of substance that could be construed to be a credible Internet strategy for Microsoft.

UPDATE: Incidentally, I just looked up the beginning of year prices pre-bid (1/31/08) again:

As of 10/8, YHOO has lost 26% from $19 to $14, but MSFT has lost almost as much: 25% from $32 to $24! Sign of superior management skills and credibility at MSFT?

Check out what David Einhorn said today in his letter to his hedge fund clients (via AlleyInsider):

… Since then, management has acted in an overaggressive and almost panicky fashion regarding its online offering. First, it sought to acquire Yahoo! and then after that failed, it announced extremely high internal investment requirements to pursue this “huge” opportunity (read: “Google-envy”). We doubt the opportunity is what they say it is and wish MSFT focused on its core strength: software.

The CEO is a very smart and very wealthy man. Perhaps, he is so wealthy that he has bigger ideas and aspirations than making MSFT’s shareholders wealthier. We’ve given up on MSFT for now…

2) I said it would take a massive effort by Yahoo’s Jerry Yang and Co. to get the ship righted at Yahoo after all of the distractions, and the deteriorating economic conditions haven’t helped. I guess I had really been hoping for Jerry to jump into full-scale survival mode and ride on a wave of adrenalin from the Micro-hoo negotiations.

But it now looks as if Yahoo is drifting helplessly, with consulting firm Bain apparently hired to set up major lay-offs in the coming weeks.

3) The stock price mentioned above is almost exactly half the offer of $31 per share that Microsoft had launched (though that number was partially in non-price-guaranteed Microsoft stock, which was already moving down after the announcement).

So that puts the speculation of Microsoft buying all or part of Yahoo back on the table. (Not to speak of the continued rage that most Yahoo shareholders have been venting toward the board over the failed/prevented deal for months.)

I have written several posts worth of arguments on the lack of soundness of a simple buy-out plan, and could write several more, but thankfully I don’t have to:

Henry Blodget of the Silicon Alley Insider has written a very concise, yet thorough post this week on why the original plan was never a good idea, and why an alternative proposal, a spin-out of Microsoft’s own foundering Internet division into Yahoo plus cash, would be a much better idea.

I have participated in the discussions on his blog for months, and so feel that at least in some small measure I have contributed to various points made in the post. Here a quote that rings of my repeated arguments about the Internet going against Microsoft’s corporate DNA:

At Microsoft, the Internet will always play second fiddle to the Windows and Office cash cows. At Google, every idea that will disrupt Microsoft is rushed into production. At Microsoft, every such idea will be buried in politics and bureaucracy. This will make it very hard for Microsoft to attract and retain the best talent… 

If you have any interest in the future of either of those two companies, the competition against Google for domination of the Internet, or simply the business strategy examples inherent therein, the post is absolutely worth a read. Here the link again:

"Microsoft Smart Not To Buy Yahoo… But Now’s The Time To Do The Better Deal"

Best wishes during "interesting times"

- Alex Schleber

But this time even usually stalwart Micro-hoo cheerleader Michael Arrington of TechCrunch is saying that Microsoft may be going too far in its Machiavellian machinations to want to feast on Yahoo’s carcass.

Meanwhile David Kirkpatrick, senior editor of Fortune Magazine, argues that Microsoft will inevitably buy Yahoo, making the case that it has gotten personal for Redmond ever since Google wrested the crown of perceived "greatest and most powerful tech company" away from them.

But in arguing that Microsoft desperately needs Yahoo’s scale, Kirkpatrick falls into the same "scale will solve things" thought trap that is deluding Microsoft, and plenty of commentators throughout the blogosphere in both posts and comments as well.

Currently Google’s monetization advantage vs. Yahoo (confirmed, and likely similar vs. MSN/Live Search), that comes from their focused execution is somewhere around 50-100%. And it has NOTHING to do with "scale".

It has everything to do with the advertisers being able to afford higher average bids due to higher average conversions. Period.

Conversion is the only thing that ultimately matters to an advertiser. Scale is a straw-man. If YHOO or MSFT had equal or better conversion numbers for the same keywords, then advertisers would jump on that. The individual advertiser could care less about the total query share numbers, or total number of clicks, they only care about their ads converting when they are being shown and clicked on.

If you mail a direct response ad, do you care what total percentage of the region or nation that mailing list reaches? No way. You care about the conversion numbers, because if an ad doesn’t convert you can’t long afford to mail/run it. In search ads, if you fail to convert the clicks you get, as a small business you can be bankrupt before you know it. It’s that simple.

The total volume of searches or even clicks for a keyword on Google, Yahoo, or MSN/Live has little or nothing to do with it. It’s simply that at lower conversion rates on Yahoo or MSN/Live, advertisers have a harder time making the economics work for them.

Steve Ballmer should change his tune at the next Microsoft company meeting:

Conversion, conversion, conversion…

Few people in "big business" understand direct response models, but that is what search advertising ultimately is. It is NOT image advertising, because Google text ads, whether served with search results or on websites and blogs as "Adsense" ads, do not lend themselves to branding exercises like display (image) ads or TV commercials.

The old adage of marketers – "I know half of my advertising is wasted, the problem is, I dont know which half" – does not hold true for the direct response model that pay-per-click ads served with searches or with content are based on.

Any advertiser with a basic understanding of the Adwords campaign management backend can tell EXACTLY which half is not working, then tweak the keywords, ad copy, asf. and turn off non-performing ads/keywords in short order.

Myth #2: "Affluence Gap"

A similar oft-repeated myth is the following statement taken from an Alley Insider comment:

Google has [...] the most affluent search users. Therefore, ad buyers want their ad to be shown on Google, and the price is bid up.

It isn’t about the supposed greater affluence of the Google users at all, otherwise Yahoo could not outsource THE AD SERVES (NOT the searches) to Google and instantly get 60-80% higher returns. Note that we’re talking about the very same (Yahoo) search users as before.

It’s about Google’s superior monetization that is due to their fanatical refinements of ad serves and the search results themselves, AND the higher conversion rates that the advertisers are experiencing.

Now there is one other side to this that is in fact branding/positioning related: The context in which an ad is served. With Google, since Google = search, users are in a "searching for a solution" mindset much more so (on average) than on Yahoo (or MSN), where people may be for any number of reasons (social, email, IM, news, etc.).

This is the real draw-back of the portal strategy that Yahoo and MSN embraced, which by definition leads to brand dilution: You have no idea about the exact user mindset, and many if not most of the pages you serve create contexts that are counter to anyone clicking on ads.

How many ads have you personally ever clicked on that got served with your free online email? Your chat? Your Yahoo groups, etc.? Chances are, none. After a brief period of mental adjustments, you likely started to completely ignore those ads.

Even Google had to learn this lesson, when they found last year that the social networking inventories for Adsense ads (e.g. on MySpace) were monetizing far lower (because converting less) than expected: People just weren’t looking to buy when networking on-line. It’s two different things.

From the point of view of the advertisers, all that matters to them is per-click cost and conversion. That alone determines whether their PPC campaign is viable past a few days. If Yahoo could allow them to get workable numbers, they’d be more than happy to bid higher on Yahoo’s search inventories.

So it is this mindset context differential rather than any affluence disparity, or the vaunted "search share" scale myth, which gets even usually smart and tech savvy people like Alley Insider’s Henry Blodget to drink Microsoft’s Kool-Aid on why they need Yahoo’s search division.

As long as this myth persists, there will likely be no peace for Yahoo.

Today, Microsoft apparently walked away from a Yahoo deal more thoroughly than they previously had, which in itself makes little sense and proves how much Ballmer and Co. have kept themselves in suspended animation during this ongoing saga.

Now, as far as Yahoo was concerned, we knew that they wouldn’t get a lot done given the continued wheeling and dealing by billionaire investor Carl Icahn. Despite Jerry Yang’s pleading with the troops to keep their noses to the grindstone, there is simply no way that Yahoo has not been deeply affected:

I was at Sprint in a former life at the time when the proposed merger with WorldCom was going on, which ultimately, and it turns out mercifully, was blocked by the DOJ. And I can tell you from that experience that very little of substance beyond basic maintenance mode happened inside Sprint for well over 6 months.

All eyes, minds, and water-cooler conversations were cued on the proposed deal and its ramifications. And that was under relatively amicable circumstances mind you.

So, with the pronouncements by MSFT today, Yahoo’s stock taking a big hit, and Yahoo in turn announcing that a deal to outsource search ad serves to Google may be happening as soon as today, someone might be tempted to say: The nightmare is over.

Or Is It?

Despite all of the "titillation", the Icahn back-and-forths, the rumor, the innuendo, and the inflated/bruised egos, let’s take a step back and look at the fundamentals of this:

MSFT + Yahoo = Still Can’t Compete

As Henry Blodget of the Alley Insider has previously argued (and I agree with him on this), the Micro-hoo deal as originally proposed does preciously little to make the combined entity more competitive against Google. MSFT has amply proven as much recently by having to resort to touting their "Live Search Cashback" gimmick as a "game changer." NOT a good sign. (I was in the middle of putting the LSCB discussion into this post but will save it for later).

You see, entrepreneurship is fundamentally concerned with arbitrage, that is, putting resources towards their highest and best uses. And combining MSFT’s money and inferior technology together with Yahoo’s inferior technology and user eyeballs does NOT a winning combination make. Period.

If you combine money with eye-balls, what have you got? A waste of $ and a combinatory nightmare.

I previously said that

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.

And MSFT has proven with each of its Internet moves in 12 long years that it is very adept at actually driving AWAY eyeballs despite all of its supposed and real advantages (its installed browser base, money, influence, etc.).

Part of this is their extreme misunderstanding of branding and the resulting branding mess that I have been reporting on here several times already, and their failure to understand the internet at a fundamental level.

So if Yahoo moves to outsource the ad serves for its search to Google, in entrepreneurial terms, they are doing the right thing. Take the money now and gear up to fight another day on NEW battle-fields where it can actually WIN.

Remember that Google’s monetization advantage is somewhere between 50-100%. Now that is a combination that actually makes economic sense: Leading eyeballs to instantly higher monetization, something that Micro-hoo might well have never achieved.

While it is true that Yahoo shouldn’t completely get out of the search game, instead of playing also-ran, they need to innovate on a massive scale. Keep the R&D going in the background, and use the newfound money to do something worthwhile.

Which is by the way what MSFT should be doing rather than continue to try to throw its weight around. It hasn’t worked on the internet in 12 years. In this context it is ironic that MSFT might now be trying to push for regulatory protection against a Goo-hoo outsourcing deal. THE monopolist of the late 20th/early 21st century crying foul… that would be so rich…

Even more ironically, if MSFT hadn’t been able to stop the DOJ proceedings against it through the arrival of the Bush admininistration, and had been broken up into say three smaller, more nimble, more hungry units, both those resulting companies and all the rest of us might well be better off today:

Vista might have been less of a failure, the Office company might have actually innovated in the "productivity" space, and the Internet division would have been free to "get" the internet unencumbered by other interests.

Back to the Goo-hoo outsourcing deal

Critics of this scheme are right that this can only be seen as a short-term fix to boost Yahoo revenues. If it’s not accompanied by very serious efforts to innovate and therefore outflank Google or create new markets that Yahoo can take a leadership position in, then it does hurt them in the long term. Their capabilities would definitely erode.

This was described in some detail by Mahaney in the TechCrunch interview, where he recounted the developments at AOL. (The full text of the interview is really a must-read for anyone interested in this entire situation.) But of course it would be up to Yahoo with how they spend that money.

If they invest it in serious innovation instead of mee-too projects, they might have a shot. As it stands now, there is very little in terms of core competencies that they have really kept even or led on.

Whatever they have going for them up to now is largely a hold-over from its successes during the Web 1.0 phase. That is predominantly the user eye-balls, people who became accustomed to using Yahoo services circa 1996-2000. They have since bungled almost everything else they touched, from search ads (where they should have led with Overture), to the rise of social networking and web video (where they largely missed the boat).

So again the critics are partially right in that Yahoo’s search share will likely keep declining over time (not rapidly though), simply because they will fall further behind in search development as well. UNLESS they make a very serious effort to come up with a next generation of search that somehow bypasses what Google is currently doing. Otherwise, they would of course be more and more dependent.

Of course, it’s Google that is hard at work figuring out the next steps in search… while MSFT and Yahoo just wasted another 4+ months on this diversion. And who knows, maybe Ballmer or Icahn will do it all over again in a few months.

More so because they were veering head-long into serious "Business Mind Hacks" psychology issues related to Branding and Positioning.

In response to Henry Blodget’s focusing on the admittedly titillating details of the current negotiations, while mentioning only in passing the likely pernicious effects of the deal in its currently proposed form on both Yahoo and MSFT, I said this:

Why would Henry say "but that’s a different story"?

That is THE story… forget about the short-term, short-sighted, Wall Street angle… none of it will matter if Q1/2009 shows that Micro-hoo has fallen even further behind Google in search/paid search due to all of the distractions that are sure to ensue if this goes through.

Not to speak of the large-scale incompatibility of the two cultures, the potential losses in user bases for "synergized" services, etc. (especially if MSFT tramples all over everything with their typical "adroitness").

If Henry truly believes that this will be a disaster (and obviously I share his view), wouldn’t that mean that the MSN-spinoff-to-Yahoo-plus-cash option should be seriously brought into view, instead of as an after-thought?

A "friendly deal is best for all involved" ONLY IF it avoids the Micro-hoo "listing super-tanker" trap. More bulk will not solve the issues that MSFT’s and Yahoo’s respective bloated empires helped create.

In MSFT’s case, in my view they would have been so much better off if the company had been split up 8 years ago into 2-3 more agile/ nimble/ aggressive/ focused units. Who knows how well MSN (with different name) might be doing today in the internet space that MSFT despite all of the posturing is only an also-ran in?

And Yahoo’s portal approach was dead when the Web 1.0 bubble burst, they just didn’t know it yet. It goes directly against your basic Ries & Trout "Immutable Laws of Positioning": Don’t dilute the brand!

Ask yourself this question: "What’s a Yahoo?" This is the reason that Yahoo never made it into everyday language the way that Google, Xerox, etc. have.

* End of 1st comment. *

Then someone tried to say that the "as for Yahoo! never becoming a verb, it was an early decision specifically not to push that for fear of diluting the trademark", to which I just had to respond because it represents such a deep misunderstanding of the phenomenon:

Dan, the "verb usage" is not something that is decreed from up high, it is a question of the meme spreading through a language/population. And that only has a chance to work correctly if the new term (e.g. Yahoo) takes a "tip of mind" position for a whole new category. Which if "Yahoo" ever did, was diluted so quickly that it had no chance to stick in this way.

Notice BTW that similarly every new venture Google tries under it’s Google brand tends to merely slog along, because a "Google" is a "search engine". So Google Video as a brand loses out to "YouTube". Focus. Simple.

Of course Google was smart enough to recognize this and buy them. "What’s a YouTube?" has a clear answer in a way that "Google Video" never did.

Yahoo BTW just violated this again by adding video to flickr, which evoked predictable groans from the "photography purist" heavy-user set. Now it’s "a flickr is a photo sharing site plus a sort-of video sharing site, like a mini-YouTube"…

Instead of trying to compete with Google in areas that it has already locked up (and "just google it" is merely one component), MSFT and Yahoo should innovate and create entire new categories of search and/or ad services, instead of saying "we sort of kind of have an Adwords too…"

Problem is, as an even bigger/more bloated juggernaut, the chances of that happening, and even in the event that it does happen, it getting "past committee" through the ever increasing layers of bureaucracy, are slim to none.

* End of 2nd comment. *

It is well worth studying your Ries & Trout on these matters, it’s all laid out clearly and supported by reams of real-world examples for all that wish to see clearly.

Back to more titillation :)

Granted, the negotiations and prospect of either a walk-away or proxy battle by MSFT including "poison pills" can be mesmerizing and mind-boggling to people interested in these kinds of industry developments, or their stock market angles (also note the new Yahoo board proposed by Microsoft, for the event of a proxy battle – this came via TechCrunch).

But none of this has much to do with the most basic questions: Is this deal a good idea? Will it work? As you know, I already placed my bet.

As CNET blogs, Google earnings may make Microsoft yearn more for Yahoo, but the real meat here is in the post’s Google quarterly earnings chart since Q1/2005. It shows that Google was making about as much all the way back then as Yahoo is expected to earn this quarter ($1.28-1.35 Billion).

Only Google has been killing it in these last three years, and just last week announced earnings of $5.2B.

You do the math, that’s about 4 TIMES as much as Yahoo.

But what is much worse, if the ComScore search engine stats have any semblance to reality at all, Google in e.g. December of 2007 had about 5.6 billion searches (a 30% year-over-year gain) to Yahoo’s 2.2 billion, or only 2.5 times as many. That means they are monetizing searches much more efficiently.

And this is the big damn secret that often gets overlooked by the mainstream media, including the financial analysts, because they do not understand paid search and it’s offspring very well:

Google is refining the efficiencies of their Adwords and Adsense offerings at an alarming rate (if you are one of their search competitors).

Last year alone, they tweaked the core algorithm 450 times! That’s more than once a day…

And the manual stuff gets even weirder…

And that’s not even mentioning the other, more "manual" things that they have done more and more since last year. Such as "firing warning-shots" across the bow of various people trying to game the system, such as "link farms" and Adsense arbitrage garbage pages, etc.

For example by introducing whole-sale Page Rank penalties for entire such link networks, and through the by now famed "Google Slap" (actually there were a number of these in ‘07) where partially manual quality scores could drive you out of the Pay-Per-Click bidding due to massively increased bid prices for offerings deemed as low quality in Google’s eyes.

In fact, recently there have been people trying to devise entirely new strategies to stay in Google’s good (quality) graces from the very beginning with a new Adwords account/campaign (check out the video here, the meat is in the second half).

Arcane stuff to most, I know, but this is the only explanation for how Google has managed to have such a stellar Q1 result despite the doubts in the market that had come from the flat to declining Paid Clicks numbers put out by ComScore the first few months of this year:

While there is certainly some declines in growth due to the current economic environment, Google itself has been cutting into the "inflation" of low-value clicks and low-click-through ads aggressively, shoring up both its per-click and per-search returns.

And while ComScore is scrambling trying to explain the Google discrepancy, it actually appears to be mostly blind to these finer points of how Google operates. Even the Alley Insider didn’t get it a few months ago.

Back to our regularly scheduled programming: Micro-hoo…

So what does all of this mean for Microsoft’s attempt to take over Yahoo? Nothing good. MSN + LiveSearch + Yahoo Search does not in itself equal a viable position vs. Google. The only thing that could work is the idea floated by Henry Blodget to have MSN/LiveSearch spun off into Yahoo plus $10B in return for a 50-51+ % stake.

There would at least be a chance that Yahoo, powered with Microsoft money from its still flush MS Office coffers, might innovate its way out of the current predicament for both companies.

But hearing from my sources how Yahoo just recently internally killed a very innovative new social network-cum-wiki proposal, plus the recent brouhaha over the lame, "is-it-a-spoof-or-not", lame, internal Microsoft Vista sales team video, I wouldn’t bet on it.

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.