FAQ: What you need to know about Microsoft's proposed takeover of Yahoo

Computerworld - Baffled by Microsoft Corp.'s push to acquire Yahoo Inc.? These frequently asked questions provide the lowdown on the contest for the Internet company.

Does a Microsoft-Yahoo deal make sense? Probably. As separate companies, Microsoft and Yahoo duplicate systems and staff. Microsoft CEO Steve Ballmer said a merger could save $1 billion annually. According to industry observers, the time is right because Yahoo's stock is down, and the company hasn't improved its results even after co-founder Jerry Yang took over as CEO in the middle of last year. Plus, Microsoft's offer, initially 62% over Yahoo's share price, is a very good deal for Yahoo shareholders.

In most areas, a Microsoft-Yahoo merger would be good for both companies. For example, in display ads, adding Microsoft's share would only improve Yahoo's position as the market leader. And because Yahoo is already a powerhouse in mobile technology, adding Microsoft's advertising assets and mobile technology would help the combined company battle Google Inc. for the leadership position.

Market research firm IDC says Microsoft, with access to Yahoo's search tools and talent, could buttress its play in the mobile space with respect to search, location-based services and advertising -- three key revenue growth areas of the future. And, IDC said, acquiring Yahoo would allow Microsoft to move enterprise technology to the mass market.

However, not even a combined Microsoft-Yahoo could challenge Google in video advertising, where its YouTube site is the overwhelming leader.

"This acquisition gives [Microsoft] the opportunity to create a 'consumer' subbrand," according to IDC. "By subbranding their SaaS activities, Microsoft can protect their fee-based software license business while aggressively driving growth in the consumer space."

Will the Microsoft-Yahoo deal work or will it be a disaster? For one thing, merging two giant companies is very difficult. Look at US Airways and America West, Vodafone Group PLC and Mannesmann AG, America Online Inc. and Time Warner Inc., Pfizer Inc. and Warner-Lambert Co., and Glaxo Wellcome PLC and SmithKline Beecham PLC.

Imagine trying to merge the cultures of Microsoft and Yahoo as well as the technologies. Silicon Alley Insider founder Henry Blodget gives some reasons why the deal will be a "disaster."

According to Blodget's Web site, it will take a year from the time Yahoo agrees to the deal for the transaction to be finalized. During that time, innovation at both companies will be stifled because developers probably won't want to launch new products when they could be about to lose their jobs. Yahoo/Microsoft employees will be wondering if they'll have jobs, and if they do, they'll be trying to figure out where their loyalties lie. Meanwhile, "Google will be steaming full speed ahead," Blodget said.