Opinion: Microsoft and News Corp? Yahoo and Time Warner? Guess on, folks

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Yahoo’s been capitalizing pretty effectively. Nor is it averse to raising the ante with articles like this on its news site:

Microsoft -- rebuffed this year in efforts to buy all of Yahoo and then just its search business -- is talking about alternative deals with Time Warner Inc, which owns AOL, and News Corp, parent of MySpace, a source close to Microsoft said, but any negotiations remain in preliminary stages.

Meanwhile, talks have continued for months between Yahoo and Time Warner over a potential merger of AOL with Yahoo to create a more formidable advertising and media player, but they are no closer to a deal, a source close to the matter said.

Cute, eh? Now, stir the pot a bit:

Several financial analysts said a key detail in the Journal report was that Microsoft and Yahoo executives had sought to revisit the merger on May 17 -- two weeks after Microsoft walked away -- and that two Yahoo board members in the meeting had said they would settle for a merger worth $33-$34 a share.

Interesting, because in the current climate, any bid would get the market involved. There’s not much real money running around, and this could produce a feeding frenzy.

There’s a bit of thought in this article. It refers to Carl Icahn, who’s in the process of a lengthy battle to take over Yahoo’s board. Icahn is pro-Microsoft. Microsoft, meanwhile, is still shopping, apparently. So this comment has some teeth:

"Microsoft is going to let Icahn do the dirty work and hand Yahoo over to them," Jefferies & Co's Squali said, adding that it was in Microsoft's interest to hang back and let Yahoo shares settle lower as investors quit betting on a takeover premium.

In the long run, however, Microsoft needs Yahoo more than Yahoo needs Microsoft, he argued.

"Microsoft has a gaping hole in its strategy and it's called the Internet and it's only getting worse because Google is encroaching on Microsoft's business," Squali said

That pretty much defines the situation.

There’s a lot more to it, though. The Google factor is in some ways being overstated, as things stand, but Google is the indefinable issue.

To compete with Google isn’t a matter of just setting up a search engine and an advertising scheme for websites. It’d take years, maybe decades, to get market penetration. To compete effectively means taking over a big, established business that can compete, earn revenue, do research and development and come up with new product.

Because those are Google’s strong suits. It’s not a one trick wonder. Microsoft, if it intends to do much about Google, has to be able to match it. Microsoft’s current structure doesn’t allow it to compete.

Google, however, as it has proved repeatedly, can takeover new business and fit it in to its structure with ease.

Google’s only real competitor in its core business is Yahoo. Jerry Yang, CEO of Yahoo, is well aware of that. He’s been strengthening the company’s cash flow, and the Time Warner move, if it ever happens, is plausible.

The mainstream media as we know it is now living on borrowed time. One day it will all be gone. TV, print, you name it, they’re on the way out.

That’s likely to happen sooner rather than later. The costs of mainstream are murderous, and the internet is relatively dirt cheap, with massive growth potential. The quicker the big corporates can get out of this overhead factory, the more profitable they’ll be.

Time Warner, AOL, News and the other big media companies know very well they have to get into the internet business as the main game. They don’t have a choice.

Yahoo, the cute single on the block, and the only one big enough to handle their volumes of business, is pretty much the only show in town.

Whoever doesn’t get Yahoo, they’ll have to wear the costs of a startup, as well as trying to compete with Google and Yahoo in whatever new form it takes. Either that, or pay Google or Yahoo for the services.

Icahn may act as a facilitator for someone, if he feels like it, but he’s unlikely to be unaware of the way the wind is blowing. He’s also unlikely to deliberately avoid making some very big money.

If he succeeds, he can't really lose, whatever happens.

There are dumber things to do with your time than control Yahoo, these days