Yahoo! will bring many benefits to Microsoft. Despite all the investments Microsoft has made since the mid-90s, its Online Services Division is still the company's ugly duckling in terms of size and profitability. In the most recent quarter, its revenue was $863 million -- far behind any other division -- and it lost $245 million (more than twice the previous year). Yahoo!'s most recent quarter logged revenue of $1.83 billion with $191 million in operating income. (Google, by the way, did $4.83 billion with $1.44 billion in operating income.) Microsoft can do three things with its Online Services Division: (1) shut it down, (2) incrementally hire engineers to close the gap with Google or (3) make a bold acquisition to get bigger and faster. This market is too big and strategically important to the rest of Microsoft to cede to Google. The Microsoft shareholders who are unhappy with this deal want them to pursue option two. Microsoft loves hiring engineers, but it can't give the division another 13 years to catch up. They have to close the gap with Google and they know it. With a united Yahoo!/Microsoft, the Online Services Division jumps to $2.7 billion in annual revenue and can be a heck of a lot more profitable. Yahoo! has a lot of great assets and engineers, but it's not known for operational excellence and right-sizing the organization. There are many great people for Microsoft to keep, but many who can go. Microsoft can answer its critics by saying its former cash hoard will be gone when this deal gets done and it will be in a much stronger position to compete in a significantly large and growing space. Its ability to carry top-grade debt is unquestionable, and Yahoo! will bring significant growth opportunities that Microsoft wouldn't otherwise have. Microsoft critics mistakenly think this deal is only about beefing up the weak sister Online Services Division. It's not. This deal is about protecting the central nervous system of Microsoft itself: Windows and Office. That's because Web services are the new versions of Windows and Office. The world is moving to something called Software as a Service, where your software lives on the Web, not your desktop. Google Docs is a slimmed down version of Office. There's a free version and a pay version of the software, both with personalized ads to supplement Google's revenue stream. Few of us use Google Docs today but that might be different in five years. TechCrunch recently pegged Google Docs revenue for last year at $400 million (2% to 3% of Google's total revenue and 10 times the size of the previous year's Google Docs revenue). Microsoft can hang on to its core business for as long as it can hoping the world won't change or it can start preparing now for the possible day when software lives on the Web, combating what Clay Christensen calls the Innovator's Dilemma. Sometimes, the best defense is a good offense. Yahoo! allows Microsoft to be stronger in search against Google and, more importantly, stronger in Web services. Rosenberg and others are right to suggest that big acquisition integrations can fail but they can also certainly succeed, if done right. The smartest people at Yahoo! will see this deal as a chance to work with even smarter people, with more opportunities in front of them, more resources behind them and fewer managerial distractions around them. And, what about Sergey and Larry not losing any sleep? Google is clearly still in a dominant position in search. However, I don't think Eric Schmidt would be complaining that Microsoft and Yahoo! together are going to " break the Internet" if they weren't concerned. Microsoft has to get its Online Services Division to perform now; just as it did with Xbox back in 2006. If it does, as it should with the help of Yahoo!, there will be no need for shareholder activists to target Redmond.