I am trying to get my head around this alternative deal that Microsoft is proposing.

“In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business.  Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!  Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. 

At first I thought WTF? Has Microsoft become that impotent? The scoop is that Microsoft would work with Yahoo in some type of joint venture involving search advertising. It makes you to wonder what they have in mind. Joint venture? Transaction? Is this not a bad way to get into the search advertising field?

I decided to walk the dogs and think hard about this deal and what Microsoft has in mind. Then it struck me, that this situation is eerily similar to something that happened way back. Ok, folks sit back and relax and listen to the story of how Microsoft got a kick butt SQL Server Database.

Way back when, Microsoft wanted to become a bigger company. They created an operating system, developer tools, and Office productivity tools. Though they wanted to be treated like a real company that could deliver server side products. At the time everybody thought Microsoft and server = joke! Microsoft was the company responsible for the three finger salute that allowed people to reboot their machines. Surely one jests when thinking about Microsoft on the server side.

Microsoft made it an issue to become competitive in the database arena since it was the hot technology. For reference this was around 1990 to 1992. At that time SQL databases was cutting edge and the defacto way to store data. Before this people used BTrees. Corporations like Oracle, and IBM DB2 were king. Microsoft on the other hand had a 16 bit operating system while working on the first version of Windows NT. The headwind that Microsoft had around that time was the exact same headwind Microsoft has now.

So Microsoft was on the warpath for acquisitions. They bought FoxPro around 1992, but that was a desktop database. Microsoft still needed a server side product, and they found nothing. Microsoft was BEHIND the gun and they needed a plan. The result was that in 1992 they decided to form a partnership with Sybase and created a Microsoft SQL Server database based on IP from Sybase.In the beginning this venture seemed odd and only helped Microsoft to a degree.

What makes that situation similar to now is that Sybase like Yahoo is not king of the hill. Then it was IBM, and Oracle, now its Google. Then Sybase had good technology, but needed help, like Yahoo now. Then it helped Microsoft step into the SQL Database arena without costing billions. And now it would appear Yahoo can help Microsoft step into search advertising with a professional product.

The rest is history and now SQL Server is an extremely rock solid product that has the accolades from many in the industry. Looking at the deal from this light it actually is a win win for all parties concerned without having to go through a battle of control. Yahoo gets to keep its independence, and Microsoft gets technology it wants. Win win… If Microsoft stock sells off, consider it a long term buying opportunity.