Five Reasons Why Microsoft Should Reconsider Buying Yahoo

1. OMG! Could AOL Bring Something To the Party?

A potential merger with AOL could reignite Yahoo's worth. AOL posted its 20th month of consecutive year-over-year growth for unique visitors, according to the September 2008 ComScore Media Metrix report. Unique visitors to AOL's programming sites grew 8 percent year over year to 53.8 million in September. Page views more than doubled, up 102 percent year over year to 3.9 billion, while engagement (aka total minutes) grew 33 percent year over year in September. In addition, page views to AOL.com grew 34 percent, unique visitors were up 12 percent and total visits were up 15 percent, driven in part by a new strategy to open the site to third-party content and services.

Of course, also bear in mind that AOL was one-half of one of the most ill-conceived mergers in recent history. Microsoft might be repelled rather than attracted by AOL in the mix. Still, it'd be an interesting mix, given AOL's openness to the developer community.

2. Yahoo Does Pretty Well With Search

Microsoft just can't seem to get the knack of search. But it could certainly buy its way in. Yahoo's most recent financial results, showed that its search business grew, one of the few bright spots. However, Google does search even better, making it easier for customers to use its Adwords reporting tools, for example. If Microsoft buys Yahoo, it would have a solid search foundation built -- but it would have to do some remodeling and updating.

3. Yahoo May Be a Bargain Now

In a down market, be cautious investing, experts say, but don't be afraid to take advantage of a good opportunity. Analysts reportedly are saying that Yahoo's stock has been hammered pretty hard of late. Yahoo shares are down 16 percent during the quarter and are down 45 percent for the year. But the company has gone through some cost cutting, recently laying off 1,000 employees. Those efficiencies, combined with a merger with AOL or a deal with Google, could position the company for growth next year. The Google plan is a bit dicey as the U.S. Justice Department determines whether the combination would dampen competition in the online ad market. Should Microsoft be able to buy the keys to Yahoo's kingdom, it could save more money by jettisoning the management of co-founder Jerry Yang, and give Jerry Seinfeld a chance to earn his keep.

4. Microsoft Could Use a Shot of Cool

Microsoft has depth and breadth of products that few other companies enjoy. Its products are used everyday, for hours a day, but those products are just not hip. No matter how you slice it, Excel is still a really nifty spreadsheet that doesn't download music. And MSNsuffice it to say it has about eight percent of the search market, according to ComScore. But Yahoo! isn't so stodgy: witness Flickr. And should Microsoft buy a Yahoo/AOL combo, not only does Microsoft gain some youthful appeal, but it also adds advertising real estate. Banner ad sales are slumping, so Microsoft will need to aggressively market its new combined entity as a means of getting companies' in front of their target consumers. At that point, Microsoft may very well say to its Gen-X savvy competitors, "It's hip to be square."

5. The deal could be the birth of Web 3.0

and not at all because of the companies involved, but rather, in spite of them. Obviously, a merger would mean significant job cuts. Who's to say that the next Google isn't the brainchild of one of those let go? Of course there'd be dead wood out there, but there will also be a lot of great creative minds that'll get working on the next best thing. And the increased competition will give Microsoft something else to worry about besides Vista.