While I do not despise Microsoft’s dominance like many others do, I believe that the combination of Microsoft and Yahoo would be a negative for Yahoo’s current customers (although, probably a positive for Yahoo’s investors). The resulting search empire would be large enough to compete with Google and would provide those who currently advertise with MSN or Yahoo access to a much larger audience. My main concern is that integrating Yahoo into Microsoft would result in a decline in the innovation and quality of the Yahoo search engine.

While I expect that a combined network would benefit large advertisers, smaller companies (including affiliate marketers) would be hurt by such a move. Advertising with the combined Yahoo-MSN would give  your ad a wider reach, but the competition will also increase. I believe that this would result in higher PPC advertising costs (what Microsoft is hoping for).

In addition, it is already possible to reach all of this market by simply advertising on both networks. The time saved by not creating duplicae advertisements will likely be more than negated by the increased costs.

In an effort to ward off Microsoft’s bid, Yahoo did announce an agreement with Google in June that would allow Yahoo to run some search advertisements sold by Google on its own sites in exchange for some the revenue. Since the announcement, the Justice Department has begun a review of the deal. European antitrust authorities also plan to review the transaction.

Time Warner has also been in early talks with Yahoo. The arrangement would involve AOL being folded into Yahoo with Time Warner taking a minority stake in the combined company. This arrangement could be a winner for both companies. News Corp. has also shown interest in a potential deal, but there are no solid plans at this point. Either way, pressure from investors will force Yahoo’s hand in the near future. The only question is whether the deal will be made under new management.