Last week was quite a contrast in tech results.  Google announced it had hired 99 new employees in the fourth quarter, but was planning to lay off 100.  Not good news, but a veritable growth binge compared to Microsoft - that announced it was laying off 5,000 from its Windows business.  To put it bluntly, people aren't buying PCs and that's the focus of all Microsoft sales.  As the PC business stagnates – not hard to predict given the shift to newer products like netbooks, Blackberry's and iPhones - revenues at Microsoft have stagnated as well.

So now the pundits are predicting that Microsoft's weakness indicates an acquisition of Yahoo! is in the offing (read article here).  The story goes that with things weak, Microsoft will buy Yahoo! to defend its survivability.  Not dissimilar to the logic behind Pfizer's acquisition of Wyeth.

But does this really make sense?  Microsoft is fully Locked-in to a completely outdated Success Formula.  Mr. Ballmer has shown no ability to do anything beyond execute the old monopolistic model of controlling the desktop.  Only a massive Disruption by founder Bill Gates kept Microsoft from falling victim to Netscape in the 1990s.  But there hasn't been any White Space at Microsoft, and year after year Microsoft is falling further behind in the technology marketplace.  Now the growth is gone in their technology.  It's just a "cash cow" that is producing less cash every year.  Microsoft is a boring company with boring management that has no idea how to compete against Google.  They would strip out whatever market intelligence Yahoo! has left in an effort to turn the company into Microsoft.  There would be nothing left of value, and a lot of cash burned up in the process.

Why shouldn't Yahoo! buy Microsoft?  Google is the leader in search and on-line ad sales.  The closest competitor is Yahoo!, which is so far behind it needs massive cash and engineering resources to develop a competitive attack.  Yahoo! has a new CEO with the smarts and brass to Disrupt things and create a new Success Formula.  Yahoo! could take advantage of the cash flow from Microsoft to develop new products, possibly products we've not thought of yet, that could create some viable competition for Google.  We don't need another Microsoft, but we do need another Google!  Why shouldn't Yahoo! take over the engineers and technical knowledge at Microsoft, as well as distribution, and use that to develop new solutions for web applications from possibly search to who knows what!  Maybe something that moves beyond the iPhone and Blackberry!

What's the odds of this happening?  Not good.  That would defy conventional wisdom that the company with all the cash should win.  But we all know that as investors we don't value cash in the bank, we value growth.  So the company with growth opportunities, and the management to invest in new solutions, should be the one that "milks" the "cash cow."  The growing company should be cutting the investment in old solutions that are near end-of-life (like Windows 7), and putting the money into growth programs that can generate much higher rates of return.  By all logic of finance, and investing, Yahoo! should buy Microsoft.  It's Ms. Bartz we need running a high tech company, shaking things up as the underdog ready to use White Space to develop new solutions that can generate growth.  Like she did when beating Calma and DEC.  Not the CEO best known for his on-stage monkey imitation and no idea how to generate growth because he's so committed to Defending & Extending the old cash business — completely missing every new technology innovation in the last decade.

Yahoo! has a chance of being a viable competitor.  Yahoo! has a chance of competing against Google and pushing both companies to new solutions making the PC an obsolete icon of the past.  But if Microsoft buys Yahoo!, it will do nobody any good.