Yahoo's 'strategic alternative' surprise involves AOL, Google

The case against AOL + Yahoo

There's at least one technological sticking point in making an AOL + Yahoo deal work: Both firms have assembled their restructured business models carefully around their respective next-generation advertising platforms, in which both have already invested millions. AOL's Platform-A is now literally a corporate division, with its own newly appointed executives. Just yesterday, AOL unveiled its Web-based management system for advertisers, through Platform-A's advertising.com subsidiary and Web site.

Meanwhile, Yahoo put a public face on its own management tools for its own ad platform on Tuesday, with its announcement of AMP! (and there's that pesky exclamation mark again), which enables individuals and companies to buy ad inventory across multiple platforms. Certainly this appears designed to compete with DART, the industry-leading toolset built by DoubleClick and now part of Google's arsenal.

In a theoretically combined Yahoo + AOL, though it would probably be the Yahoo brand that survived, it's not clear whose advertising platform would necessarily come out the last one standing. And any incentive for Google to contribute to the deal would probably include the prospect of one less competitor for DART, which means there wouldn't be any merger of equals in that department.

Counter-bluster

The counter-punch in Microsoft's corner this morning was the Times theory that Microsoft could join up with News Corp. (presumably through Fox Interactive Media, the parent of MySpace) to sweeten Microsoft's cash offer. Such a deal would make News Corp. or FIM part-owner of a new Yahoo.

What speculators on that side of the battlefield may have failed to take into account is that such an arrangement would run contrary to Microsoft's principal goal of the merger: the removal of MSN's key impediment to competition with Google. Under that theoretical plan, Yahoo would continue to be a kind of NBC Universal-style spinoff, with joint investors seated on a board led by independent directors.

The obvious problem there is that Yahoo would still exist separately, even if it's being directed 51% by Microsoft. And how strong would such direction be if on the other end of the table were appointees of Rupert Murdoch? In such a universe, MSN would also presumably continue to exist as both a brand and as a company division, rather than be zipped into a Yahoo portal consumed by Microsoft. Thus MSN would still have Yahoo impeding its competition in the online advertising space with Google.

What's worse, Microsoft would be competing with itself. And history has shown (Works, Money, "Bob," et al) that Microsoft's single worst competitor has usually been Microsoft.

Besides, on the News Corp. side, let's not forget that FIM just last week launched its latest restructuring based around...can you guess?...its own advertising and developer platforms. In a joint arrangement with News Corp., those platforms would likely have to survive, since it's Murdoch's money that's tied up in them; and as we've already seen, Microsoft isn't interested in having to acquire someone else's technology.

Conceivably, a Frankenstein-like, re-concocted Yahoo/Fox/MSN/MySpace would be a recipe for a lethally explosive combination, with Steve Ballmer feuding with Rupert Murdoch and Ray Ozzie warring with Peter Levinsohn. However, there's reason to speculate Google might not be opposed to such an arrangement, which would be like an IRL race where the leader is out in front by half a lap, while second and third place are teammates drafting against one another for position. Typically, the leader leverages that battle to widen the distance between itself and the pack.

In fact, with everyone else besides Google now mixing it up, there's good reason to believe that no matter the outcome here...Google may somehow end up in front anyway.