Not so long ago, in the days when most of us had either Hotmail addresses or Yahoo mail, a Microsoft-Yahoo merger would have been a world-historic event. Now, the question is, do two semi-losers make a winner?

If the merger goes through, will grizzled old Microsoft’s software strength and Yahoo’s fading online glory finally produce a Google-killer? If they get together, will the combine be a formidable Micro-Hoo! Or an outmoded Micro-who?

Microsoft’s Steve Ballmer certainly thinks that “this combination enables synergies related to scale economics of the advertising platform where today there is only one competitor”, and “reduce operational inefficiencies” as they throw their respective weights together to gun for Google. As far as Microsoft’s concerned, the move makes perfect sense. It fits in with the strategy of muscling into markets it cannot claim with in-house innovation (it’s been famously slapped on the wrist for its anti-competitive practices), by simply buying up. Acquiring Yahoo would give it a large, loyal user-base as well as (it hopes) give it clout in the online advertising market, where all the money is.

So far, Google has effortlessly ruled this space. Recently, Microsoft and Google sparred over the online advertising company DoubleClick, with Microsoft laughably opposing it on antitrust grounds, claiming that it would choke all competition. But the fact remains that Google has figured out the best way to monetise search, with contextual and targeted advertisements that offer the best value for money. And it’s a virtuous cycle of success as ad-spends flock to the established market leader. This 40 billion-dollar worth online advertising industry is expected to double in the next five years and Microsoft and Yahoo both desperately want in.

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