Like everyone else in the search industry, I have my $0.02 I'm just dying to give on the MS/Yahoo! deal. First off, I think we need to decide officially whether the new moniker will be Micrahoo! or Yahrosoft. Next, we should probably take a short walk through the timeline of events so everyone's on the same page.

Danny Sullivan did a good job covering all this, but here's a quick look back:

• In February of 2004, Yahoo!, which had acquired a lot of search properties over the past few years (Inktomi -which served results to Hotbot, and the Overture company - including AlltheWeb & AltaVista), rolled out its own search technology. Prior to 2004, Yahoo! search was actually powered by Google.
• In July of 2004, Microsoft search, which had been powered by Inktomi (who was bought by Yahoo! the previous year), started testing their new search technology.
• On January 31st, 2005, Microsoft drops the Yahoo! powered search and rolls out their own engine to power MSN portals and Live Search. 
• In September 2006, Microsoft rebrands MSN Search as "Live Search," the brand that has persisted until now.

Yahoo! once used Google, Microsoft was once powered by Yahoo!, and by 2005, all of them had their own independent platforms. Let's take a quick look at market share to help get a grasp on the history:

All numbers come from Nielsen's NetRatings Service.
* Google's numbers do not include share from searches conducted at AOL.

I think Google's share today is actually much closer to 70% (like Rich) and Hitwise's data showed that for technology-focused sites, it's at least that high, if not higher. Google's dominating web search - they have the most relevant engine (by a few hairs over Yahoo!), the best results (on average) and, most importantly, the best brand association. When humans the world over think search, they think Google (unless they're Chinese, Russian, Japanese, or Korean - in which case it's Baidu, Yandex, Yahoo!, and Naver, respectively).

However, Yahoo! and Microsoft are considerably more competitive with Google in another landscape - online display advertising. When it comes to banners, rich media, and more "branding" focused ads, Microsoft, with the acquisition of aQuantive in August of 2007, and Yahoo!, with the properties it controls and partnerships, would handily take the #1 position in market share (and probably leverage that to reach an even larger audience^)source.

Now that we've got an idea of the past, let's see if we can sort out what happened in the last few days:

• At precisely butt-o'clock in the morning on Friday, February 1, Microsoft sends over their formal offer to buy Yahoo! for a combined cash/stock deal valuing Yahoo! at $44.6 billion ($31/share). This is a 62% premium on Yahoo!'s current share price.
• Yahoo! says they'll think about it.
• SELand does an interview with Yusuf Mehdi from Microsoft about the deal, where he basically says that he either can't or won't answer many questions with specifics, but he does focus more on the search side of the business than I would expect (though perhaps that's because the interview is with Danny).
• Cue blogosphere going insane.
• Google complains that the deal makes the web less open (insert something about kettle and a pot here), Microsoft retorts - no surprises.
• Google offers to help Yahoo! in other ways (ways that benefit them instead of Microsoft - shock! shock!), News Corp considers and (maybe) rejects a bid, as does Time Warner, AT&T, AOL, and Comcast.
• Microsoft and Yahoo! both send out emails to their employees to help "rally the troops."

And that pretty much brings us to where we are today.

In addition to all these wonderful news, there's also been some terrific comments made across the web about this potential deal. I'll highlight some of my favorites, then get to my opinions on the subject.

From Fake Steve Jobs:

Imagine a circus act in which two enormous, clumsy, awkward elephants that don't really like each other are supposed to mate while riding on skateboards. Now imagine that it is your job, you lucky bastard, to be one of the little circus clowns standing alongside trying to make this extremely unnatural and unholy act take place. Hundreds, maybe thousands, of people will have their lives completely ruined and flipped upside down for the next two years because of this deal. They'll see even less of their kids. And those ski weekends? Forget about it. Ain't gonna happen. Meanwhile Google will keep pulling away.

From Fred Wilson:

There's another reason why I don't think a purchase of Yahoo! makes much sense for Microsoft. I suspect that many of Yahoo!'s best services will languish under Microsoft's ownership and that users will leave. It's happening already under Yahoo!'s ownership to services like Flickr and Delicious and MyBlogLog. It will be worse under Microsoft's ownership.

Web services don't get better under the ownership of big companies. They get worse.

Consolidation of ownership of web services is not a good thing for the Internet. If you think about the Internet, it's a huge distributed network of loosely connected services owned and operated by literally millions.

From Scoble:

Email is not where the money is. Google knows this. So, who cares that Microsoft and Yahoo have a monopoly there? There’s only one way to make money with the 600 million who are on either Microsoft’s Hotmail or Yahoo’s email: get them to join other services where there ARE ways to make money. Danny Sullivan told me that this deal is all about search. He’s right. But you gotta be able to get those 600 million people to not just use your email, but come over and use your search. Google is trying to slow down these teams from doing that. But Google knows that even if Microsoft and Yahoo join email and do a pretty decent job of integrating search into there that Google will still see more growth in both email and search than Microsoft and Yahoo together will see. Why? Have you compared Google’s offerings to the others? I have (I am a Hotmail user). Even though I am locked into Hotmail cause my email address is all over the Web I’d rather be on Gmail and Google’s offerings are better integrated and better designed.

So... What do I think of all this?

First off, I think the deal is likely to go through at this point. I could be wrong, but Microsoft clearly timed this offering very carefully and will probably fight hard to keep it. Yahoo! is in a weakened position due to Wall Street's lack of faith in Jerry Yang as CEO, which is sad to see. However, I think Yahoo! did themselves in when they couldn't make products like Flickr, Upcoming, Del.icio.us, and MyBlogLog into better, faster, stronger versions of themselves. So much wasted opportunity...

Second, I agree with the web's consensus that Yahoo! and Microsoft employees are not going to get along culturally. We've done some work with Microsoft & Yahoo! and I have a lot of friends at both companies. In fact, two of SEOmoz's most recent additions to our engineering team have backgrounds there. From middle management right down to the engineering level, Microsoft is based on a bureaucratic, institutionalized system. Despite pioneering the casual dress code and flexible work hours, they're the least "startup-like" company in the tech world and it shows in the people they retain and promote, vs. those who leave. Yahoo!'s culture doesn't match up well at all - they're a big company, but many of their divisions feel like a startup and virtually all of their people are in more of that mindset. Unless the transition is managed brilliantly, I'd expect years of ugliness and abandonment by people they need to compete before things settle down.

Third, everyone says this is all about search. I'll get to my opinion on that below, but first let's look at it. Obviously, Yahoo! Search is probably a year or two ahead of Microsoft in terms of relevancy and spam detection. They could (and should) go back to powering MSN Search. One search marketing division and ~30% of the market makes advertising on Micrahoo!/Yahrosoft a necessity for most serious marketers, and together they'd drive enough traffic to make it valuable for even small campaigns to invest. Microsoft also desperately needs a contextual ad program, which Yahoo! brings to the table. With more advertisers on the program due to an increase in share and adoption (by all their respective partners), that product may actually be competitive with AdSense. Combining the researchers and IR engineers from the two probably also improves the crawl, algorithm, spam detection, and quality of the search experience, but it might take 2-3 years before that synergy is actually realized.

Fourth - what if this isn't about search? Or, at least, what if it isn't ALL about search? What if Microsoft is actually thinking more about something else - the online display ad business, for example?

Let me wax poetical for a minute here - if this seems off-topic, just wait. Imagine a world, 12 years from now, where we, as a nation, watch television almost exclusively on demand. Instead of being monetized by advertising, TV becomes a pay-to-watch service like iTunes. Shows live or die based on how many people watch them each week and product placement is the only real advertising opportunity (apart from possibly an intro commercial like they do a the movies). In that world, big brand advertisers have no "mass media" because, don't forget, radio and newspapers are going the way of the Dodo, too. Thus, they're forced to turn to web-based media to reach the hearts and minds (or create the 7 brand mentions essential to giving those 20-something kids a brand association).

In this brave new world, digital display advertising is a major force - advertisers are fighting banner blindness, running viral, rich media campaigns and leveraging the power of the interactive medium for all it's worth. In that world, if it exists, Microsoft's play for Yahoo! will have seemed much less like an exclusively search-based play, and much more like a step towards staying relevant and competitive in online display ads.

That's not the only place Microsoft might be thinking, either. Being the clear #1 destination on the web has a lot of other great perks, including being able to reach more users than anyone else can faster than anyone else can. If Microsoft and Yahoo! combine, build something game-changing, and launch, they're almost certainly better off doing it together. Sadly, though, I don't give this theory much of a shot. Innovation in the web world doesn't, and hasn't, come from Microsoft and I don't think the current leadership is willing to make the kinds of changes necessary to bring back the explorative, enterpreneurial style necessary to create a Google killer (or an eBay, Craiglist, or Amazon, for that matter).

Hey! What About the Search Marketers?

I haven't forgotten you, don't worry. For SEO & SEM campaigns, a world with only two players is actually easier for most campaigns and efforts. Yahoo! is much closer to the relevancy systems Google uses, so SEOing for both at the same time will be fairly simple. For PPC, buying from two places instead of three reduces complexity and confusion and lets us all benefit from the need to be in "both" engines. Plenty of other folks have had smart things to say on this front - notably Loren Baker and Aaron Wall (these are both worth a read), and I don't have much more to add. I will be interested to see if the Yahoo! Media Group properties combine with the MSN Media properties (autos, news, finance, etc.) or if those sites remain segmented.

Thanks for the attention, and apologies for the long post. There's a lot to say here. I suspect the comments will bring lots of other great insights that I've glossed over.