The Microsoft/Yahoo! deal redux

After three years it seems that the Microsoft/Yahoo deal is back on the table, this time at $16-$18/share, instead of $31 and without employee retention plan. It is clear (at least to me) the search traffic generated by Yahoo! and served by Bing is of critical importance to Microsoft and Bing - Yahoo! still brings more search queries to Bing than Bing itself, according to the September 2011 ComScore Ranking. Without the Yahoo! search traffic Bing will end up with a lot of unused capacity, even bigger financial losses and no hope of competing with Google whatsoever. Imagine what would happen if Yahoo! decides to arbitrage its 15% search share and give to to the highest bidder, split it between several providers or in-source it again.

With that said, the only way I can see such merger being even partially successful is by Microsoft acquiring a controlling stake in Yahoo! and leaving it alone. Maybe Microsoft can bring some new management, fold in parts of MSN and Hotmail, leverage some shared data center infrastructure, but overall they should leave Yahoo! alone. The cultures don't mix, the technologies don't mix, an acquisition will very likely be followed by even faster brain drain from Yahoo!.

The bigger question is whether it's worth another $25bn to the $9bn that Microsoft has lost on their online business? This article has a good breakdown of the numbers.