I think right now every analysis I've seen tends to underestimate Microsoft, overestimate Google, and forget the lessons we should have learned from Yahoo. First of all, the obvious key here is not search or services, it's ads. Microsoft + Yahoo yields nearly as much advertising revenue as Google and a good deal more clout in attracting ad buys. It's obviously the big reason for the bid, with the other big reason being Google's multiple bids for Yahoo at this point. Here's the funny thing: Microsoft doesn't need the ad revenue. Microsoft has products and productized services that continue to make money and will so for the conceivable future. Yahoo needs the ad revenue, and always has. Yahoo is dependent upon that. It's quite likely that Yahoo would benefit from a Microsoft merger/takeover than Microsoft would.
I think that Google has a lot to lose if the deal goes through. Right now they are the undisputed kings of ad revenue, but the lesson people should have learned from Yahoo (and the companies that came before it) is that online ad revenue is a fickle, fickle beast. Yahoo used their lucrative leading position in ad revenue to bankroll a certain Stanford venture that eventually came to usurp their throne on the top of the ad revenue pile. Maybe Google is smarter than that and has a better eye for potential rivals than Yahoo, but every company has the potential to make bad business decisions that looked like good ones at the time.
I escaped Yahoo! Mail following the attempts to productize it in the era where their ad revenue was shrinking due to the bubble pop at the end of the .com boom. I have an escape plan should Google start to productize their services in a similar fashion should they start to lose ad revenue. (Do you have a Google services escape plan?) Google absolutely does not have a diverse enough income stream to handle the case should ad revenue decline (again!) or be usurped (again!). As much as I like and use Google's various free (as in beer) services I think Google is a bad long term investment. Google is the new Yahoo and I haven't seen any evidence that Google has learned some of the tough lessons of Yahoo. Even Yahoo, I think, still sometimes seems to be oblivious to their own past faults... The internet is anybody's game and the big lesson is how transient most "internet companies" are and have been, particularly those that live and die by ad revenue. (Remember the glory days of AltaVista, Infoseek, GO, Excite, Lycos, Xoom, etc, etc...?)
I'm not saying that Google isn't a good competitor, I just don't think that Microsoft has as much to worry about from Google as most people, particularly analysts, seem to think... Google is floating on as much cheer and good wishes as it is actual income and business sense, and I think there's a definite possibility that some day the bubble of cheer and good wishes could burst and they become just another Yahoo, if they are lucky, and entirely forgotten if they aren't.
Finally, I just want to push that Open Source is a red herring in this debate at this point. It doesn't impact any of the companies. If you look at the three sides of Open Source (Consuming, Producing, Evangelising), I think things are pretty clear that right now there are no "winners" among the three. Microsoft obviously consumes the least open source, but it's only useful in these analyses in terms of the effect on the bottom line and Microsoft's use of their own software has just about as much of a bottom line effect as the other two company's bottom lines are effected by their choices of open source products. As for producing, I would estimate that all three are nearly equal at this point, but its certainly hard to quantify. If we are just looking purely at the number of different open source projects across the widest number of product categories, I think Microsoft gets close to winning that now. In evangelism Google has an obvious lead, but I'd put Microsoft well ahead of Yahoo today in the open source evangelism that they've been doing...
Anyway, I'm just tired of the "Google is better than Microsoft" fanboyism burst that this buyout offer has brought out. They have different niches, different strategies, and they aren't exactly competing for the same dollars across the board. We're still somewhat talking Apples and Orangutans here, even if most analysts and techies are drinking the cool-aid that says internet ad revenue and mindshare is all that really matters anymore. We've heard that a million times before and investors funneled a whole lot of cash around on that theory into many bad investments already in the .com boom...