Most people still think of Microsoft as the unchallenged superpower of the software world. It's not. Microsoft doesn't just want to buy Yahoo; if it wants to have a decent shot at still being the number one company in the world by the decade's end, it must buy Yahoo.
Microsoft has been beginning to decline. Vista has not caught on with businesses. Microsoft is already beating the drum to get customers excited about the next version of Windows, Windows 7. Both Linux and Apple are making inroads on the desktop.
Office 2007 is doing well, but OpenOffice is providing an interesting alternative. More importantly for Microsoft's long-term health, it's Microsoft's most significant foe in over a decade. It's not just that when anyone searches for anything on the Web, they turn to Google rather than MSN Search. Today, Google's Open Apps, and ODF, which it supports, is making significant inroads into the office.
That's small potatoes though compared to what else Google has been doing. Google is turning its search superiority into an online ad juggernaut. Its purchase of online ad DoubleClick, over Microsoft's objections, will bring it even greater revenues. Its OpenSocial initiative and joining with DataPortability promises to make Google the framework for all social networking. Oh, and have I mentioned that Google is trying to move into the mobile space with control of the 700MHz spectrum?
If Microsoft is to avoid aging into a last-generation technology company it must make a major move like trying to buy Yahoo. The company literally has no choice about it from where I sit.
Unfortunately, for Microsoft, I think they waited too long to pull the trigger. Now, Yahoo is in decline. It just cut 1,000 jobs and rumor has it that there are more cuts to come; its stock was trading at a four-year low, and Terry Semel, Yahoo's non-executive chairman and former CEO, is stepping down -- read pushed -- from Yahoo's board of directors. Why is all this happening? Because Yahoo has already proved it can't compete with Google.
Can two companies on a downward spiral combine to beat Google? I doubt it. Does Microsoft have to try it any way? Yes, yes, it must.