A Microsoft/Yahoo marriage? There's something to contemplate ...
From a Microsoft perspective, this really is all about Google. Microsoft's Windows Live ecosystem, positioned as a Google-killer, simply hasn't gained the traction Redmond would have hoped, not even simply in the search field -- people still "Google" each other, they don't "Windows Live Search" each other, even if every browser upgrade installs a Live Search box in the menu bar. (Tangentially, why did Yahoo never push its identity as a verb? You never hear of someone "Yahooing" information. Serious oversight.)
Incorporating the Yahoo audience, though, and synthesizing the complementary technology (Y!M already works with Live Messenger, for example) could buy Microsoft the market share it didn't realize it didn't have the patience to build. Product for product, business line for business line, MS/Yahoo would line up nose to nose with Google.
There's also the captive market, subscribers to ISPs like Rogers who've thrown their hat in with Yahoo. I've had the same Rogers e-mail account for years; I'm not about to go through the hassle of changing horses just because new ownership's in town. And, let's face it, the battle for the desktop is over and Microsoft won, at least on the consumer front. (People who are involved in tech tend to forget the real world doesn't give a rat's about Linux, they just want The Sims to work.)
So, how would MS/Yahoo stack up against Google? On some fronts, it's an even match. But Google looks more like the New England Patriots every day. The overpayment for YouTube is beginning to look like genius. Blogger's a more attractive engine than Windows Live for people who want a share of incremental ad and affiliate revenue. MS gets Flickr (good) and has a tiny share of Facebook (your 15 minutes are almost up).
But any discussion of Google in a competitive sense has to acknowledge all that dark fibre the company picked up for cents on the dollar in the last crash, and the enormous block of IPv6 addresses assigned to it recently. A Google-aligned ISP could offer consumers static IP addresses, not the dynamic nonsense we have to put up with today. (Shall we resurrect Google's TiSP?) And whoever knows what they're doing with the fibre ain't talkin' ...