As any modern general knows, victory is not a solution to problems; it's the start of them. When I hear all the talk about Yahoo!, Microsoft, Google, AOL and NewsCorp, I think of generals discussing strategy: We'll invade -- I mean, buy -- such and such a territory. We'll annex this part, split that one off, create a special zone for such and such a minority business line, merge the two online divisions. We'll do a pincer movement with our allies, cut the enemy off at the pass...
But companies and countries aren't so much real estate to be divided with measuring sticks and calculators. Having a new owner doesn't magically create a healthy business any more than a new government or even elections can create a civil society. Even Google, which to many eyes can do no wrong, is discovering some of these realities as it attempts to annex DoubleClick. Customers don't like to be traded around anymore than citizens do.
Countries and companies need to be grown, not constructed or assembled. So how does this apply to you and Microsoft, Steve?
First of all, why take on Yahoo!? Unlike the old Iraq, it's not even evil, and its weapons of mass profitability, called Panama, seem to have been mostly a figment of certain engineers' and analysts' imaginations. By buying Yahoo!, you will only have bought new problems for yourselves.
Meanwhile, there is fresh territory out there, territory that doesn't need to be bought or conquered. It needs to be cultivated. The territory I'm thinking of is health care. [Disclosure: Yes, I have vested interests here: I am or was an investor in a variety of health care start-ups, including Medstory, which you bought last year. The rest below.*]
This market is a monster, potentially much bigger than Iraq -- I mean, than Yahoo! And if you invest here, you'll be growing all along, mostly organically, rather than trying to squeeze profits out of a revenue stream by cutting costs.
In the long run, it is bigger than your current business: Doesn't it make sense that people will spend more on their own health than on their PCs (whether directly or through taxes)?
There are two big opportunities in health care, both well suited to you (and the second one less to Google, before you even ask).
On the consumer side, hosting health records and providing a platform for consumer health applications, MS has the advantage of consumer trust/visibility. Some in the industry (especially Yahoo! and Google) may despise your company, but to consumers it is mostly a familiar and reputable name. They trusted it with their Hotmail; they will trust Health Vault with their medical info. And they need applications to manage and explore that information, not just for health care, but around prevention and healthy living.
Institutions as well
On the enterprise side, you already have a small business selling to health-care institutions; invest to grow it into a big one. MS is good at selling to enterprises and governments, which still perform a huge amount of health care processes, especially overseas.
In the long run, health care is a global business, with most of it in the emerging markets that comprise most of the world's population - and in which MS is mostly welcomed. Like it or not, health care in these markets is still mostly a government responsibility - and they desperately need software tools to become more effective. Yes, I would love to see every Indian villager and Tibetan monk and African school child with his or her own health record...but meanwhile I'd settle for clinics that could upload disease statistics to a government health database and track the progress of each patient's treatment or the dates of each child's vaccinations.
The reductions in costs and the gains in productive lives would actually be enough to pay Microsoft's bills with just a few years' lag (just like any good investment). If I were an investor, I would cheer the company's focus on a market big enough to make a difference to MS, and serious enough to absorb and reward long-term investment. Truly, MS is so large that what's good for the world is good for Microsoft.
In the end, to be a healthy business, you don't need to solve the problems of Yahoo! or its stockholders. You need to solve the problems of your customers.
Disclosure: You can tell I'm sincere about this: My medical investments/affiliations include 23andMe (consumer genomes), Keas (stealth), Ovusoft (consumer fertility), PatientsLikeMe, ReliefinSite (pending, consumer pain diary), Resilient and You-Take-Control (both permissions and data-access infrastructure), and Voxiva (data collection and management).