Does a Microsoft-Yahoo Merger Equal Trouble for Google?

Today, Microsoft announced that it has made another unsolicited bid for Yahoo valued at $44.6 billion in cash and stock. The deal would pay Yahoo shareholders $31 a share, which represents a 62% premium from where Yahoo stock closed on January 31, 2008.

Now I know there are a lot of folks out there that are like here we go again, considering Microsoft made a bid for Yahoo last year that ultimately failed, so what’s different this time? Well for starters Terry Semel is no longer CEO and I think that Jerry Yang will be much more open to the idea. (Terry Semel also resigned from the Yahoo Board of Directors on Thursday). Since Semel was a major voice against a merger last time around with him out of the way the deal could suffer less opposition.

The next reason is that neither Microsoft nor Yahoo can take on the beast that has become Google alone and they both know this. Microsoft has long been trailing in the search category and with the acquisition of Yahoo they automatically become number two in search. The can merge the decent parts of msn search, scrap the rest and use the extra money and resources to promote further growth. A year ago Yahoo thought that they could pull themselves out of this funk they were in with the debut of their new search engine being the main driver, here we are a year later and while the search is much improved it hasn’t given them the bump they thought it would.

There are more than a few places for synergy between the two companies which could not only make the customers happy but also go along way towards decreasing duplication of effort and increasing value for the shareholders. Can you imagine Photosynth and Flickr made into one tool? Egos aside at this point and time this really seems to be a good deal for both companies.

With Google recently missing targets and proving that they are vulnerable this could be the time for Yahoo and Microsoft to make up ground. It will take a lot of hardwork and effort to catch Google but I don’t its impossible. The bottom line is that in this case one company is better than two and they need to find a way to make this work or they will never be able to compete with Google.