Is Yahoo is best way for Microsoft to spend its cash?

Microsoft is likely to prevail in its Yahoo bid — and most likely without raising its offer. But just because Microsoft can buy the No. 2 search vendor doesn’t necessarily mean it should.

Those are the results of a new poll of Wall Street analysts by Reuters. Reuters polled eight Microsoft analysts and 14 Yahoo analysts on their latest views of the prospects of the Microsoft acquisition of Yahoo. Eight of the eight Wall Street analysts who closely follow Microsoft predicted the deal would transpire, as did 14 of 15 of the Yahoo analysts.

The Reuters poll found Wall Street brokers who follow either company remain convinced that Microsoft will prevail in its takeover. Eight of eight Microsoft analysts surveyed and 14 of 15 Yahoo analysts believe Microsoft will get the deal done.

The part of the findings I was most interested to read:

“While all the Microsoft analysts in the poll believe a deal will get done, there was some argument over whether this is the best use of Microsoft’s cash reserves, which stood at $21 billion at the end of December.

“Microsoft, which has predicted the (Yahoo) transaction will break even or be accretive in the second full year after the deal’s closing, is expected to dip into a good chunk of its cash and issue some debt to finance the Yahoo acquisition.

“Analysts argue that the short-term return on an investment in Yahoo does not match that of money reinvested in the software maker’s own operations or other, smaller acquisitions. Longer-term the return may be better, but there is significant risk in combining the companies that cannot be overlooked.

“The Yahoo acquisition is ‘absolutely not’ Microsoft’s best use of cash, said Morningstar analyst Toan Tran. The money it is using for Yahoo could be put toward several smaller Web acquisitions that carry less risk, he said.”

The Reuters story claims that even if Microsoft depleted its cash reserves, it can “easily rebuild its bank account.”

Microsoft sure seems to be spending like crazy on acquisitions lately (especially advertising-related ones). And it needs to keep more than a little pocket money on hand for those pesky fines and lawsuits that seem to keep materializing.

I am still not not a backer of or believer in Microsoft’s Yahoo acquisition. I understand Microsoft needs ad inventory and a bigger share of the search market. But $44 billion (or, as the value now stands, $41 billion) sure seems like a lot to spend on a company which has a whole lot of overlap with Microsoft.

Yahoo set to open its search engine to third parties

Yahoo Inc. is planning to open its Yahoo Search engine to allow third parties to add a wide variety of data to search results.

Code-named “Search Monkey,” the new open-source application programming interfaces (API) that Yahoo is slated to detail today will allow Web site owners to add information such as ratings and reviews, images, deep links and other data directly to the Yahoo Search results Web page.

“Our intent is clear — present users with richer, more useful search results so that they can complete their tasks more efficiently and get from ‘to-do’ to ‘done,’” noted Vish Makhijani, senior vice president and general manager of Yahoo Search. “So instead of a simple title, abstract and URL, for the first time, users will see rich results that incorporate the massive amount of data buried in Web sites.”

Web site owners can supply Yahoo with data, and the company’s Machined Learned Ranking technology will ensure that the results are presented to users at the correct time, he added.

“We believe that combining a free, open platform with structured, semantic content from across the Web is a clear win for all parties involved — site owners, Yahoo and, most importantly, our users,” Makhijani said. “And by the way, users will be in complete control of the experience and will be able to turn off anything related to open search if they so desire.”

In an example provided by Yahoo, a search result for a Japanese restaurant in California that previously would have included the URL, an abstract and an address would provide ratings, price information and links for reviews and photos with the new tools. Yahoo plans to provide additional details on how the open search tool will work over the next few months.

Not to be outdone, Google Inc. posted a reminder Monday that its similar effort, called Subscribed Links, allows users to create custom search results that users can add to their own Google search pages. Matt Cutts, a Google software engineer and head of Google’s Webspam team, noted that Subscribed Links, which Google debuted in 2006, allows users to “display links to your services, answer questions, and calculate useful quantities and more.”

Google founder spooked by Microsoft bid

Google Inc. co-founder Sergey Brin called Microsoft Corp.’s takeover bid for Yahoo Inc. an “unnerving” maneuver that threatens innovation on the Internet.

Brin reiterated the Internet search leader’s position that a merger could violate antitrust laws and harm Internet users.

Brin made the comment after an event at the Mountain View-based company’s headquarters for the Google Lunar X Prize, a race to land a privately funded robotic spacecraft on the moon.

“The Internet has evolved from open standards, having a diversity of companies,” Brin told The Associated Press after the event. “And when you start to have companies that control the operating system, control the browsers, they really tie up the top Web sites, and can be used to manipulate stuff in various ways. I think that’s unnerving.”

Shortly after Microsoft (MSFT, Fortune 500) unveiled its surprise $44.6 billion unsolicited offer for Yahoo (YHOO, Fortune 500) earlier this month, Google’s chief legal officer David Drummond argued in a company blog posting that a merger between companies that control the Internet’s two most heavily trafficked Web portals could lead to abuses. Those could be limiting users’ ability to easily access competing products, from e-mail to instant messaging to Web-based services, such as those Google offers.

Microsoft has argued that it’s committed to protecting innovation on the Internet and that scuttling the deal would allow Google (GOOG, Fortune 500) to become even more dominant on the Internet than it already is.