Microsoft and Yahoo: Is 1+1=2 or 0?

This week Microsoft placed a huge (44.6 Billion) bid to buy out Yahoo. I understand Steve Ballmer believes there is a bright future for online advertisement, but can it be enough to bet the future of the world's largest software company?

It is not as if Microsoft is king of online advertisement and has to defend its position against an aggressive opponent. Actually, this description would better fit Yahoo who has been slipping in past years as Google continues to grow and dominate the online advertisement market.

Microsoft itself has a much less than stellar record in the advertisement business so I wonder what makes them think that they can combine two second rate players and come out with something which will beat the undefeated champion. The logic of this move, at this time, totally escapes me.

This deal reminds me of when IBM bought Lotus. At that time I remember saying to a friend "IBM has just done Microsoft the best favor it could. They've effectively removed Microsoft's greatest potential competitor." This feels very similar to me. I am not sure if Yahoo can recover and start going up again, but I am sure Microsoft will not do a better job.

On the other hand, if I had Yahoo stock, with a 62% premium on the table, I would really be hoping that this deal goes through as fast as possible.