Microsoft's Online Worries Extend Far Beyond Google Search

Yahoo investor Carl Icahn, who owns 5 percent of the company, said in a recent interview that he still supports a search deal between Microsoft and Yahoo. Icahn said he believes that by engaging in such a deal, Yahoo could save some cash and become more solvent. At the same time, Microsoft could enjoy far more leverage in the search space as it attempts to compete with Google.

This isn't the first time a deal between Microsoft and Yahoo has been floated. In 2008, Microsoft attempted to acquire Yahoo for a 67 percent premium on its stock price in a deal valued at $44.6 billion. After being rebuffed on multiple occasions, Microsoft walked away from the table, only to come back later in an attempt to acquire Yahoo's search. Jerry Yang, the former Yahoo CEO and the company's founder, blocked any deals from happening and, once again, Microsoft was forced to walk away with nothing.

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But now, Yahoo is in under new leadership. The company's CEO, Carol Bartz, has said on numerous occasions that she would entertain a Microsoft search deal as long as it involved "boatloads of money." She estimated that if the deal gets done, Yahoo could save $500 million to $700 million by cutting staff and reducing data center costs. From Yahoo's perspective, the deal might finally make some sense.

But what about Microsoft's perspective? Speculation abounds that Ballmer and co. are at the negotiating table once again with Yahoo for some kind of search or advertising alliance. Rumors suggest Microsoft is getting closer to inking a deal that would see its 8.4 percent market share combined with Yahoo's 19.6 percent market share to face off against Google and its 65 percent share. Some contend that such a deal could significantly help Microsoft in the search space.

Although that might be true, how smart is it for Microsoft to engage in search deals with Yahoo? Granted, the company has all the cash it needs to acquire Yahoo's search and still have some left over to invest in other opportunities. But that doesn't make it a good move. Microsoft's core business is being targeted directly by Google.

The search giant is bringing an operating system online, it already offers an office applications suite on the Web, and Chrome, its Web browser, is growing in popularity. In each case, Google is targeting the core of Microsoft's business. Even that 28 percent search market share could mean nothing if Microsoft loses its grip on operating systems and its Office suite.