Wow, I can see that Microsoft is tired of being in 3rd place for search and online advertising revenues, but how exactly do they envision bringing two big conglomerates together will solve their problems? Are there not enough examples of this being a really bad idea? AOL - Time Warner, Daimler - Chrysler, the list goes on.

A look at Steve Ballmer’s letter to the Yahoo Board states that Microsoft can align with Yahoo! to create a more competitive offering and consolidate operational and R&D costs. He spells it out like this…

Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

– Scale economics

– Expanded R&D capacity

– Operational efficiencies

– Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

Ok, really? That’s why you want to spend $44.6 Billion? R&D capacity? This because, I’m guessing here, both Yahoo! and Microsoft have been sooo innovative lately. Even if they do generate great innovations, their respective corporate cultures will most likely kill them before they can bring it to market. My favorite is the last one, emerging user experiences. Microsoft wants to buy it’s way into the stuff that Y! doesn’t do well, or pay a huge premium for the few things that are working well in the areas MSFT wants to get into (Answers, Go, Zimbra).

Financials aside, Yahoo!’s fundamental strength of their brand is the quirkiness and fun that they share. Microsoft is known for their button down “business user” approach. How exactly will these two cultures work together? Who wants to use MicroHOO’s carefully laid out new social media offering? With MSFT at the helm, the few fun quirky things left at Y! are likely to be cut, or at the very least neglected and underfunded. What may look good on paper (combined search market share - 32.7%) doesn’t hold up to common sense.

I understand Microsoft is looking for new revenue streams and not putting all of it’s eggs into the software basket. They’ve done some great stuff with that focus - Xbox. But they’ve also had some highly questionable (at best) - Facebook investment, the Zune, etc… I’m betting this deal, if it goes through, will be the biggest mistake both companies have ever made.