A YHOO-NEWS Corp tie up could be much better, especially along the lines that Michael reports above. FIM with Yahoo would probably continue the off-network strategy and focus on creating a true online media company. That should bring welcome innovation to publisher-side solutions.

1. Value of Yahoo to MSFT is defensive–designed to slow Goog’s growth and mitigate market share loss to MSFT. Therefore, value of Yahoo is defined not only by synergies and ad pricing/sales, but by potential sales/market share MSFT would lose to Google WITHOUT Yahoo
2. MSFT does not have any other major acquisition options
3. Yahoo is more valuable with FIM over x time. Given that PE fund would participate, they will look for an exit eventually anyway–as would existing shareholders. However, shareholders would have to wait for value to materialize in share price, vs. receive $30/sh right now. Assuming 2-3 years for full synergies of Yahoo and FIM, $30/sh now may be more appealing depending on discount/risk.
4. MSFT would still have to buy Yahoo down the road, except they would get a 2:1 “twofer” deal that would include MySpace–despite the obvious conflict with their FaceBook Foux Pax. What would Yahoo be worth to Microsoft in 2-3 years with FIM’s assets? Now that is the real question…

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Leadership and making Money, thats what we all expect from Y!.

*I haven’t heard this phrase before so I’d like to take credit if ti takes off

–Substantially increase YHOO’s ad/marketing audience and pricing power with agencies
–Increase YHOO’s ad distribution
–Increase YHOO’s revenue and cash flow for minimal additional capex–thus improving margins
–SUBSTANTIALLY increase Yahoo’s valuation and long-term prospects
–Excluding synergies, could easily enable YHOO to grow into a $30/share company independent of MSFT
–Increase future price MSFT will have to pay for YHOO–since they will have to buy it anyway. Microsoft admitted they can’t grow organically, they’ve admitted defeat to Google, and they really don’t have any other major acquisition options–just as YHOO doesn’t have any other major potential buyers. That math works both ways…Thus, a YHOO/MySpace/NEWS CORP deal really puts the screws on Microsoft. MSFT will have to substantially increase its bid, or admit and cede defeat to Google.

Brilliant–and congrats to Yahoo’s Board and advisers if this goes through with News Corp! Yahoo shareholders should INSIST on a deal with News Corp.

The problem with this theory is that Google’s advertising gives higher ROI, and therefore gets far higher CPCs.

Apple’s turnaround (@#17) is a good example: they regrouped everything they do under one seamless identity of ‘lifestyle products’, and then charged premium prices. Thus iPods, iTunes, Macs – even Apple shops – all work together. In contrast, Yahoo! have products actually competing against each other to the benefit of nobody except Google.

On another note, from the comments it seems that half the users will leave if News Corp buys Yahoo!; the other half will leave if Microsoft buys them. But if nobody buys them, everybody will leave as their service slowly degrades compared to the rest of the internet.

Does Y! have time to work with FIM?

Remember 23% of Online Advertising goes to Google (and thats mostly Search and AdSense). Once the DCLK deal is done they are going to get better crack at Display. The value prop from Google to Agencies, Media Buyers, Small Businesses, Branded sites, Social Media Sites, Long Tail Inventory will be much more attractive because of all the pieces that Google brings to the table and how easy they make it for everyone to be successful.

In any battle you have Time and Ground. If you don’t have time you had better gain some ground. Google obviously has time on their side as does M$. Y! may not have the ability to gain enough ground on its own or with FIM in the time needed to stay a leader.