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The on-again, off-again reports of Microsoft's (NASDAQ:MSFT) plans to acquire Yahoo (NASDAQ:YHOO) have finally convinced me to jump into the fray with a slightly more radical suggestion. I have taken a more radical view on Yahoo in the past, and now it's MSFT's turn.

The assumption underlying Redmond's purported interest in Yahoo is that MSFT needs to bulk up on search in order to compete with Google (NASDAQ:GOOG), who is tightening the noose around MSFT from all angles, especially search and apps. I think that this ignores two salient facts -- Microsoft has fallen behind Google for a reason. These are occurring simultaneously because Microsoft has not yet mastered consumer web apps and, it really is not a consumer software company or a consumer company at all, for that matter.

Think about it: Apple has always been better at UI and product, but MSFT nailed the business model and the channels to both consumers (PC makers) and businesses. MSFT caught Netscape on the browser because they could bundle it, and directed traffic to MSN as the default home page (inertia is powerful). Microsoft is fundamentally a business that serves enterprises and its focusing so much attention on catching Google on search etc., may cause it to cede the enterprise business from the bottom even though they are the most profitable, and powerful company on the planet. So what can be done?

1. Your enemy's enemy is your friend. MSFT should empower and strengthen Yahoo, who is Google's most likely competitor. I almost agree with Henry Blodget here but, instead of acquiring Yahoo and spinning it out, MSFT should sell MSN and its consumer Internet business to Yahoo. MSFT could get great economics on the deal and by making Yahoo the default home page for IE, it could give them a considerable boost and, in the process, surpass Google. I am sure that there is also a deal to be cut around MSFT live services here.

2. Focus on the enterprise and protect/extend the core. I think it would be interesting for MSFT to try to buy Salesforce.com (NYSE:CRM), which is on a roll. It would catapult MSFT forward in hosted apps.

3. Tie the experience together. MSFT did not make it in a big way with Passport, but the time has come for someone to tie together identity, online services and multiple devices. Tying it together means rolling in a lot of OS functions and features that enable me to use and manage all of my online experiences in a unified way. The Tellme (Benchmark company) acquisition and MSFT's experience in OS should enable it to do this -- I refer to both the multiple platforms (web, PC, phone), and the varied services (see my previous post on Web 3.0). There is some fear of Google today that might open the door for MSFT on this front.

I always tread carefully on these kinds of posts, but thought that this might be thought-provoking.

Source: An Alternative Path For Microsoft