Microsoft to Slowly Devour YahooS

Today's deal between Microsoft and Yahoo is officially a partnership. But the 10-year search deal, assuming it clears regulators, inevitably ends one way: With Yahoo's annihilation.

The most likely scenario is presaged by the logo above, used by the two companies on a website about their deal: Yahoo as a division of Microsoft. For 10 years, Microsoft will power Yahoo searches, while Yahoo will sell the ads. Assuming Yahoo can grow and remain viable — a big if — Microsoft will have every incentive to buy the company at the end of the deal, and Yahoo will be heavily motivated to sell. Microsoft will want to retain Yahoo's traffic and sales force; Yahoo will be loathe to swap out the search technology behind all its sites.

Alternatively, Yahoo continues to flail. Under that scenario, Microsoft's Bing search engine will at least be able to exploit Yahoo just as Google once did; Yahoo gave Google crucial revenue and visibility early in its growth, and will give a similar boost to Bing. At the end of 10 years, if Yahoo is still around, Microsoft will simply walk away, leaving Yahoo to crawl into a corner and die.

In any case, it's fun to see Yahoo CEO Carol Bartz, no doubt mindful of the need to clear antitrust regulators, finally acknowledge Google's power over her company. In a new video, she says this deal gives Microsoft and Yahoo "the scale necessary to compete against Google, which dominates the market with 70% of all search." Barely two months ago, she bit off a CNBC reporter's head for saying basically the same thing. Compare/conrast in the video at left. There's no denying Google's power now; indeed, it's the main rationale for the deal.