When you’re as big as Microsoft is, you’d think you’d have nothing to fear. But as we all know, that isn’t the case. The folks in Redmond have grown increasingly fearful over the past few years of their neighbors to the south, the growing behemoth known as Google. While Google has yet to officially move in on Microsoft’s most profitable markets (desktop operating systems and productivity software), the folks in Mountain View have demonstrated that they understand the Internet better than just about anyone else. Remember that Google has seen an incredible amount of success in both web search and web advertising–two areas where Microsoft tried to compete and failed. There’s no doubt that the future of software is on the web–even Microsoft’s Ray Ozzie has admitted as much.

Which is why Microsoft is looking at acquiring a more web-savvy company. Sure, Yahoo has been hurting recently and merger rumors have been floating around for some time. Google is a highly-focused company (all roads lead back to the search algorithm), whereas Yahoo lacks definition and has yet to find a unifying principle for its array of web services. Still, the company wields a massive amount of sway in both web search and web advertising and has recently demonstrated (with exciting services like Pipes) that it isn’t completely devoid of new ideas. In some ways, Yahoo could be Microsoft’s ideal muse: making up for Redmond’s shortcomings while helping it move into new markets. Microsoft has long employed a defensive strategy against Google but the company is going to have to get a whole lot more aggressive if it wants to maintain its dominance in the software market.

Could it really happen? Yes, but it would take time. Microsoft generally steers clear of large-scale acquisitions and certain camps at Yahoo are sure to put up a fight. And let’s not forget the regulatory hurdles that a $296 billion company would face in trying to buy a $38 billion company. Both Microsoft and Yahoo are currently struggling to figure out how best to compete with Google and both companies are running out of time. Could the combined powers of Microsoft and Yahoo create a viable challenger to Google’s dominance of the web? With a name like Microhoo, anything’s possible.