What’s the Matter with Micro-hoo?

It’s February, and that means we’re in the last five months of the Bill Gates era (the Microsoft chairman and Chief Software Architect is bowing out in June to spend more time with his Foundation). And how is the company celebrating? By blowing the company’s wad on Yahoo, the troubled search service. It’s quite an attempt to burnish his legacy, considering that the $45 billion price tag is more cash than the software giant has on hand. Indeed, it’s probably a little more cash than Gates is currently worth, given Microsoft’s plummeting share price.

What would a combined Microsoft-Yahoo, presuming it can clear all the regulatory hurdles, mean to the small business world? Here are a few preliminary thoughts:

– In the short term, very little. In the long term, more competitive online ad pricing, given that the whole point of the deal is to better compete with Google. Expect both sides to make some preemptive price-per-click cost-cutting.

– The combined company — call it Microhoo — would likely be cash poor for a while, and focused on the internecine battles of its own internal integration. Got a cool tech startup and want to be acquired? Take it to the Googleplex.

– If you need engineers, now would be the time to go fishing in Sunnyvale, Calif. and Redmond, Wash. The companies cover so many similar areas — search, ads, and dozens of other online services — that there’s going to be a lot of blood on the floor.

Microhoo could be a prescient combination that looks good once Gates has gone, much as HP’s acquisition of Compaq turned out to be a point for Carly Fiorina (but only after she was ousted). Or it could be a costly folly, the business world’s answer to the Iraq war. Either way, it isn’t likely to make much difference to the bigger picture of computing, where Gates once shone.

A report released by venerable research firm Gartner yesterday says Apple is likely to double its share of the PC market between now and 2011. The report also predicts that 80% of all commercial software will have open source elements by 2012. Around 40% of companies will be using Internet-based business software by then, Gartner says. Microsoft, in all these cases, is the loser — something worth thinking about while you consider that costly upgrade to Windows Vista or Office 2008.

The “Coming Internet Tidal Wave,” as Gates called it in a famous 1995 memo, is here, and it’s about to wash right over the company he is leaving. Thirteen years later, it is doubtful that the software giant has done enough to prepare itself for the tsunami — if it had, after all, why would it need Yahoo? Now it’s trying to appropriate some extra hands in order to keep its supertanker afloat. Savvy small businesses, meanwhile, can just keep paddling along in their flotilla of kayaks — and enjoy the spectacle of a grand old ship going down.