Microsoft to become Micro-ad?

If the $44 billion Yahoo acquisition proposed by Microsoft on February 1 goes through, Microsoft will be a very different company than it is now.

In spite of its Software + Services push, Microsoft has been and still is a software vendor. Windows and Office still are how Microsoft makes the bulk of its money. Microsoft's online services business is a relatively tiny piece of Microsoft's overall business and is likely to remain in the red for years to come, company officials admitted during last week's earnings conference call.

If Microsoft adds Yahoo to its mix, overnight, online services -- and specifically online advertising -- will become more than a struggling side business for Microsoft. Chief Financial Officer Chris Lidell said Microsoft believes it would break even in the second year post closing of the deal. During the same conference call with press and analysts on February 1 where Lidell made this remark, Microsoft Platforms & Services President Kevin Johnson said a Yahoo acquisition would allow Microsoft to take advantage of scaled economies in search, online advertising and the datacenter infrastructure to run these online services.

Microsoft has been beefing up its online-advertising-focused investments for months now by buying a variety of smaller companies which own pieces of the online advertising pie. Until now, the biggest aquisition Microsoft had ever made was online-advertising powerhouse aQuantive, which it bought last year. While that buy had substantial impact on Microsoft's overall strategy and priorities, it still didn't result in Microsoft becoming more of an advertising vendor than a software vendor. But a Yahoo purchase would irrevocably change the kind of company Microsoft is.

What's your take? Does a Microsoft Yahoo buy make sense? Would Microsoft have been better served by sticking to its software knitting and continuing to chip away at online advertising as a side business, instead of trying to turn online advertising into its core franchise?