The ‘net is ablaze after the announcement that MSFT is to consume YHOO at a 61% premium on a cash & share unfinanced basis. This will generate considerable interest for the continued war on the GOOG.

In principle, this seems like a sensible aggregation strategy for Microsoft. Yahoo are bleeding right now, they shed jobs and there is a general sense that the company was wracked by doubt. The question is whether Redmond can really be their knight?

Yahoo! is itself a lesson in the fact that acquisitions do not necessarily mean that you get a strategy in a can, just add water. The canned solution tends to look and taste like other canned products, unless you are very lucky or ready to break and re-mold what you’ve bought. At different times, Yahoo have tried being a portal (with google doing their search), content providers and service providers. Flickr is an exception only because it wasn’t a core acquisition, and even then they suffered a revolt over integrating yahoo ids.

On the other hand, Microsoft have had very little success in their strategy of reproducing anything popular and slapping a “Live” branding on it. They have, at different times, looked to replace youtube, google maps, google search and myspace. Ultimately these have all failed.

I feel that Microsoft are fire-fighting with this strategy. They don’t really want to be an advertising company on the web - they just don’t want Google to transform the landscape to the point where users are using webservices for everything, and your OS is irrelevant so long as it runs firefox. This means that Microsoft’s heart really doesn’t seem to be in this fight, so I am not convinced that they can win it.

Google have bought a lot of companies as well, and for the most part they have disappeared. It appears that many of Google’s acquisitions are about buying expertise rather than software products, but it seems like an expensive way to do it.

The real question is about how the two companies will now merge. Will Yahoo disappear into microsoft, or will it continue as a separate entity?

The implications for Microsoft’s real internet success, the XBOX live platform form the real apex of the question. If MS pushes its conventional live platform (hotmail, live spaces, popfly, live earth, search) onto the Yahoo brand, it could team extremely well with the XBL platform as a cross-platform integrated model.

In the end, my feeling is that the las thing Microsoft needs is another strategically uncertain bag of subsidiaries, however it could make for a useful way for microsoft to consolidate and reduce its offerings into a more streamlined way to leverage the advantages that 18 or so milllion xbox360s give.