Ballmer drinks the search Kool-Aid, loses mind. Details at 11

Good news for VCs and entrepreneurs looking for an exit -- huge strategic buyers are trying to outdo each other to be on the giving end of Most Overpriced Deal of the Century.

Microsoft's offer of $45 billion for Yahoo makes Sun's recent $1 billion gift to MySQL look like bargain hunting.

How many things are wrong with this deal for Microsoft? Where shall we start? How about with Microsoft's bread and butter.

The software giant right now is in the middle of its latest Windows sales cycle, trying to get enterprises and small businesses to upgrade to Vista. The upgrade, which took five years, is going reasonably well, based on the financial results Microsoft just reported.

But with the Yahoo deal, Ballmer is signaling to his customer base that the company's focus is going to shift squarely onto Web-based applications.

Yes, businesses are tired of overpaying for under-baked software coming out of Redmond. But until now, they could at least do so with the knowledge that the company would update and support their applications with all its mighty resources.

But now, all those IT pros whose thankless job it is to make Vista work with older programs and hardware may find some distracted people on the other end of those support requests.

Microsoft's internal focus is moving in the opposite direction of supporting its biggest money-makers. You've got to wonder how Ballmer will motivate the engineers working on Office when all the excitement at the company is moving toward developing a platform that most of them know little about.

How much bigger an endorsement of the Web-based application strategy espoused by Google could Ballmer have given?

This is like a general shouting in the middle of a battle: "you know what, the enemy's philosophy is actually the right one, but I want you to keep on fighting just as hard for me." 

Good luck with that one, Steve.

As I've argued before, the biggest beneficiary of this deal is none other than Google, which for the next year or two will enjoy a situation where it's two biggest search rivals are focused within rather than on the market.

Given that Ballmer actually made his first offer a year ago, it's hard to argue that he had a lot of confidence in the near-term future of shrink-wrapped software. It's one thing to recognize a big tech trend, like software delivered over the Web, that will impact your business. It's quite another to spend four or five years worth of Office-generated profits on a rival that every quarter becomes a more-distant No. 2 player in its most-profitable market.

Along with destroying Microsoft's esprit de corp, Ballmer is overpaying for a rival, one that his company was gaining on in the search market and one which has all kinds of overlap with his own, from lots of multimedia content that no one is willing to pay for to e-mail which, by the way, is also free.

Given the vastly different cultures of the two giants, this integration is going to be a nightmare on a scale not seen since AOL "acquired" Time Warner.

Both of them are in the process of digesting online ad sellers aQuantive and RightMedia. Can you imagine more confusion than trying to merge two giants that are each simultaneously trying to integrate smaller companies whose businesses look nothing like anything Microsoft knew until two years ago.

I've covered dozens of these rival buyouts during the last decade, and none ever live up to their promises. Oracle buying PeopleSoft was a notable exception, but those two firms had cultures that were a lot more similar than Microsoft's and Yahoo's.

Clearly, Ballmer's passionate defense of Microsoft's own search product, which we showed you in this story, was clearly an act.  But it was such an entertaining one, I embedded it in this post as well.