What is up with Microsoft (NASDAQ:MSFT)?

Yesterday's Wall Street Journal claims that the software giant still hasn't gotten over its feelings for Yahoo! (NASDAQ:YHOO) and has been in talks with other Web media heavies, including News Corp. (NYSE:NWS) and Time Warner (NYSE:TWX), for a new run at the company.

Mr. Softy is no longer Mr. Nice Guy, though. Microsoft's alleged plan would be to carve up Yahoo! by taking the portal's lucrative search engine for itself, then handing over the traffic-attracting scraps to News Corp.'s MySpace or Time Warner's AOL to handle.

The rub? Well, there are several.

  • MySpace and AOL have ad-serving deals with Microsoft nemesis Google (NASDAQ:GOOG). Wouldn't sending those media companies more online properties help Google?
  • Paid search provides the highest margins in online advertising. It's easy to see why Microsoft would want that, but why would its deal partners settle for the lower-margin leftovers?
  • Microsoft's unsolicited buyout offer divided Yahoo! shareholders, but dividing Yahoo! is unlikely to unite Yahoo! shareholders. Get it?

The real crime here is that Microsoft could have walked away. It was sitting pretty when it left Yahoo! executives simmering until the next shareholder meeting. Sticking around, in any capacity, will keep Yahoo!'s stock buoyant.

Sticking around also makes it seem as if Microsoft doesn't have a firm plan to attack Google without Yahoo!, which is a pretty sorry position to be in, given that both Microsoft and Yahoo! have relinquished market share to Google over the years.

Even if these advances prove hollow, Microsoft is starting to look desperate. Come on, now, Microsoft. You're better than that.

Some other recent Microhoo dealings: