What the Microsoft-Yahoo deal might mean for rich Internet applications

I'm still digesting the news of Microsoft's' $44.6 billion bid for Yahoo or the possible News Corp bid which is a lot more intriguing). I feel like everyone knew it was coming but it didn't really do anything to diminish the surprise. This deal is primarily an advertising deal. It's a way for Microsoft to buy into the race with Google and do it with style. But I think the long term implications here have a huge impact on rich Internet applications for a few reasons.

As Robert Scoble notes, Yahoo has a ton of great Web 2.0 properties. Not all of these are rich Internet applications per se, but the DNA of the entire company is built around creating interesting web experiences. Sometimes those experiences are acquisitions (Flickr, del.icio.us, Upcoming) and sometimes they're created in-house (Yahoo maps, Yahoo finance). I always thought Microsoft had the most potential to transform itself into a web company. They have great software properties and with stuff like Silverlight it was clear they were looking for a way to merge that software with the web in a powerful way. If some of that Yahoo DNA can survive, the combination of Microsoft's platform with Yahoo's web savvy is going to be very interesting.

I also think there's more potential here than people realize. I always thought Yahoo got a raw deal. Yahoo properties drive a ton of traffic because the content is so good. Advertising only works if people visit the web and people visit the web to do interesting things. Yahoo nailed that with its properties but it couldn't convert that into big money advertising for a variety of reasons. Maybe Microsoft can actually turn that around. RIAs are part of the new web. Customers are flocking to them, developers are creating absolutely fantastic stuff on top of RIA technology, and Microsoft is in a position to combine RIAs with their existing properties (Zune, Xbox, Office) and all of Yahoo's properties. If they can do that they may be able to increase the value of advertising on the site and even become the next gen ad company. Google's text ads are great but they aren't the future. Microsoft would have enough pieces of the puzzle to explore that future.

Finally, I think there's a big void that Yahoo leaves that will hopefully jump-start competition in the world of RIAs. Yahoo was a great company in part because it was willing to grow through small acquisitions. It ended up with some very interesting properties. Where is the acquirer of great RIAs? Yahoo might have stepped up because it had a long tradition but would Microsoft step up? Google has a lot of potential. Would Adobe step in there? Does this open up an area for IAC or eBay to add value by diversifying from core assets and taking Yahoo's place as arguably the most interesting destination on the web? I hope so. We need companies like Yahoo and the RIA space is only getting hotter. There's big money to be made down the road in acquiring these companies because they hold the key to the next generation of the web experience. Hopefully someone steps up.