I haven’t posted lately on the Microsoft / Yahoo bid. It’s been interesting seeing things unfold… I thought Yahoo would have been much more receptive to the offer. Or, more to the point, I thought Microsoft and Yahoo had already come to terms and this was more the public drama. But apparently not.

At the Microsoft company meeting last year, Steve Ballmer, in his big rah-rah speech at the end, mentioned that the first thing needed for the Search team was a plan to be #2. #2? Yeah… if you’re #3 (or #5, behind Baidu and Naver… sucks when your global service is smaller world-wide than a dominant local service in China and South Korea!). But let’s focus on the US market, so the goal is to move beyond Yahoo into the #2 position.

How, exactly, will that be done?

Seriously… there are millions of people who have Yahoo as their home page and use their search engine. The #1 query on Google is “Yahoo.” Yahoo, while declining in share a bit, is still huge and will hold on for years and years. They’ve held most of their customers, and their customers aren’t going anywhere. Not like Google hasn’t been around for a few years now.

So, let’s say Microsoft makes a search engine better than Yahoo. OK… will that get Yahoo customers? Doubtful. Why? There’s already a better engine: Google. Hasn’t been a flood of people moving over.

OK, so it’s a better engine… and better mail, messenger, portal?

I don’t buy that.

OK… so I’m not seeing a clear answer to get Yahoo customers to go to some newer, better thing quickly. So how about attacking Yahoo’s financials? Kill the ad network… compete on price, offer advertisers more for less. Lose tons, but it kills them.

OK, let’s say that works. You kill Yahoo financially, destroy the asset. Some advertisers have gone to Microsoft, others to Google. Hopefully the market hasn’t come down, even though in a recession it will and it looks like we’re in one. But the customers really aren’t moving… so Microsoft still has to buy Yahoo in the end.

So ultimately, it’s a question of buying a mostly healthy asset now at a premium, or dumping billions into weakening them for a later purchase… and hope that Google hasn’t just run away with things.

Thus, ultimately, I think Microsoft has to purchase Yahoo, and came to that conclusion earlier this year. Will there be tons of conflict? Yup. Problems integrating? Absolutely. A huge exodus of smart talent up 101 to Google? Damn straight.

But more to the point… how else can Microsoft get to #2? I don’t see it. So, they bet the company and try to buy Yahoo… cry havoc!