Microsoft wants to be Pepsi to Google’s Coke

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After two years of talking about it, Microsoft finally put in a formal bid for Yahoo this morning. Yahoo had a really bad earnings report a couple days ago, making the deal a little cheaper than it would have otherwise been.

The deal here seems to be that Steve Ballmer & Co. think the world will support one more online advertising network to compete with Google’s, but not several. Microhoo is supposed to become that one competitor, the Pepsi to Google’s Coke.

What gets me, though, is that this deal is a pretty clear indication that Microsoft’s great cash cow — selling software — is just that, a cash cow to be milked as the company transforms into some sort of advertising-supported online thingie. Also known as a media company. And most media companies don’t have anything like the kind of profit margins that Microsoft shareholders are used to. Well, except Google.

Update: Lev Grossman yawns, Barry Ritholtz wonders about the price, Paul Kedrosky says it all makes sense, and Felix Salmon angles for a job writing Microsoft’s press releases.