Should Microsoft Buy Foundering Yahoo?

Is it time to swoop in for Yahoo Inc?

Following the recent firing of Yahoo’s CEO, Carol Bartz, the question arises as to whether Microsoft should again make an offer to buy Yahoo.

Let’s backtrack a bit to 2009 when Microsoft’s Steve Ballmer made the original offer of $44 billion for Yahoo. Under Jerry Yang, Yahoo made the fateful decision to spurn Microsoft’s offer in what is one of the worst business decisions ever.

Today, after Carol Bartz’ email firing (people are just not polite anymore!), Yahoo’s market cap stands at just $16 billion and Ballmer must be heaving a huge sigh of relief at Jerry Yang’s intransigence.

In the interim, Yahoo has been steadily losing share to Google and Bing and in fact, now uses Bing for search. Although its profit margins and earnings grew under Bartz, its online businesses are slowly shrinking as Facebook, Twitter and Google suck up the oxygen online.

So the question for today is whether Microsoft should pounce now that Bartz – who was lukewarm to selling – is out of the picture, as is Jerry Yang.

Even at $16 billion, is it worth it? Many writers seem to think not. Bing is already eating Yahoo’s search business lunch and is in fact, processing their searches. Bing’s share of the market will eventually crowd out Yahoo.

In terms of the online businesses like Flickr and of course Yahoo mail, to mention just two, they would likely not be of great significance to Microsoft, who might be better served investing in a more innovative company (Groupon perhaps?).

Writing in Wired, Anders Bylund agrees. He sees a grim future for Yahoo, with sale to a private equity firm being the most likely outcome. That would be a tough transition for a proud, once-market leader.

What should Microsoft do, in your opinion?