Yahoo! Doesn't Have What Microsoft Needs

Microsoft and Yahoo! have a big problem. Online ads are booming, and they are getting left out. Microsoft's online business racked up a loss of $248 million during the quarter ending in December. Yahoo! makes money, but its earnings are slipping fast: Net income fell 23 % to $205.7 million last quarter from $268 million during the year-ago period.

Little wonder Microsoft (nasdaq: MSFT - news - people ) bid for Yahoo! (nasdaq: YHOO - news - people ) Friday. While Google (nasdaq: GOOG - news - people ) sucks up the money flowing into online advertising, its two online rivals grow weaker. On Wednesday, Google reported a 17% jump in earnings to $1.21 billion over the year-ago period.

But if search advertising is raining cash down on Google, Microsoft's attempt to fix the problem by buying Yahoo! is like running out into the street and trying to capture some of the downpour with a fork: It's the wrong tool for the job. Call it reverse synergy--both Microsoft and Yahoo! are weak where Google is strong, in search and search advertising. read full story