The rumors are flying fast and furious (see Techmeme for a sampling). This is a logical deal, yet a potentially foolish one.
It’s logical because the two companies have been whacked by Google in the online advertising and search space, and combined they offer fairly complementary services. The world needs a solid non-Google choice, because Google is getting too powerful for our good.
But Microsoft’s legacy software business is in conflict with the online world. If they make this deal, they should combine most of Yahoo’s businesses with MSN into a separate company. Compete with Google — and with MIcrosoft. Then there’s a good chance of making it work.