• Silicon Alley Insider, Wednesday, November 28, 2007 11 AM

As a follow-up to his post about why perennial Google chaser Microsoft might have to buy Yahoo, Silicon Alley Insider's Henry Blodget explores how such a deal might unfold--and why it would be bad for Yahoo. This is mostly because Microsoft's online division "will always play second-fiddle to the Windows and Office monopolies," meaning that any strategy for the combined company would deign to preserve those monopolies. This is why he says Microsoft has "failed so miserably online for the past 12 years: internal politics and competing priorities."

Microsoft's failure to efficiently evolve its software business is one of the core reasons rival Google is out to destroy its software monopoly. Google has taken the ideas of Windows and Office recreated them for free online; Microsoft-Yahoo would eventually have to do the same to compete with Google.

Because that isn't likely to happen, Blodget says Microsoft's best bet would be to sell its Internet division to Yahoo in exchange for a large stake and several seats on the combined company's board, and to share its Windows Live and Office Live software while allowing the new company to charter its own strategy.

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