At Microsoft’s annual shareholder’s meeting today, CEO Steve Ballmer has put the kibosh on speculation that the company will resurrect its bid to acquire Yahoo. However, Ballmer did suggest that a search deal was possible.

Microsoft’s single-minded pursuit to acquire Yahoo never made much sense to me. Sure, it would obtain substantial search market shareover night, but it would still have to claw its way up to compete with Google. Even when the two companies are combined, Google still holds the upper hand in market share.

There is also a great deal of overlap between Microsoft and Yahoo products, and there would certainly be a culture clash among employees. Brain drain is another issue. If Microsoft were to buy Yahoo today, it would not be obtaining the talent that it would have just a few months back. It would also be costly to retain people–even its own employees, many of whom would be hesitant to spend their time at Microsoft getting caught up in turf wars.

A merger with Yahoo would distract Microsoft from important initiatives that are core to its future success, such as project Oslo, an multi-product effort to steer developers toward model driven development and service oriented architecture, as well as continued investment in the .NET Framework.

Microhoo makes no sense for Microsoft, but a search deal does-–especially now that Yahoo has shied away from its partnership with Google. AND it could still happen; Ballmer never backs off.

Aside from Microsoft, who is going to be Yahoo’s white knight now? AOL? As multiple pundits have said, that would be like tying two bricks together to see if they could float.

Yahoo needs to retool and find a successful business model to become a profitable–albeit smaller–company. Microsoft can reap the benefits of Yahoo’s search presence without stepping into that mud pit, and Yahoo can score some much needed cash. Microsoft needs to do something different to compete with Google; it can’t even pay people to use Live Search. The only people who I know that use Live Search work at Microsoft, and that’s partly because they were scolded and ordered to use it. (Word is Ballmer excoriated employees for using Google.)

 
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