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Microsoft to Yahoo: Fine, Be That Way!

Silicon Valley printers can go back to their usual summer plans: They won't need to gear up to crank out new business cards for thousands of Yahoo staffers who would have found themselves Microsoft employees later this year. Microsoft announced Saturday that it would abandon the merger attempt it launched at the end of January.

In a "Dear Jerry" letter to Yahoo chief executive Jerry Yang, Microsoft chief executive Steve Ballmer wrote that while Microsoft's $33/share offer represented a 70 percent premium above Yahoo's closing price on Jan. 31, Yahoo had demanded another $4 a share, which Microsoft would not accept. Ballmer also wrote that Yahoo's plans to let Google handle part of its Web-advertising business would have wrecked the entire deal. And so, he concluded, "clearly a deal is not to be."

My colleague Peter Whoriskey's story today offers more details.

I was a skeptic about the odds of this deal happening from the start, but I thought it would get quashed by regulators in the U.S. or the European Union, not abandoned after a round of counter-offers.

The Microsoft that once ordered around the rest of the computer industry seems to have vanished sometime in the last decade. Microsoft had a chance to solve its problem by throwing money at it but declined to. It threatened a hostile takeover, in which it would get its own slate of merger-friendly directors installed on Yahoo's board, and then called off those plans.

This leaves Yahoo with the same problems it faced at the start of the year--a slate of often lackluster homegrown Web products, a failure to make much use of such high-profile acquisitions as the Flickr photo-album site and the bookmarks-sharing site, and some outright gaps (hey, Yahoo, ever heard of hosting people's blogs?) in its lineup. Yahoo's staffers may feel a reinvigorated sense of purpose, as Yang wrote on the company's corporate blog, but what's to stop Google from eating still more of this company's lunch?

So a lot of people see Yahoo as the loser in this deal (see, for instance, TechCrunch's reaction this morning). But what about Microsoft?

In many cases, it's provided more effective alternatives to Google than Yahoo has. Its home page, unlike Yahoo's confused, cluttered front door, doesn't look like a throwback to the kitchen-sink design of Web "portals" of the late 1990s. Its Live Maps site offers visual details that rival both Yahoo Maps and Google Maps (and it's the only site I trust to guide me on Interstate 66 inside the Beltway).

Let me put it this way: If one of these two companies had to get wiped off the Web, I would miss Microsoft's work a little more than Yahoo's.

But Microsoft can't seem to pick one Web strategy and stick to it. Instead, we've seen a confusing shuffling of brand names over the past decade. It's also had trouble deciding if some of its Web services, such as Hotmail--er, "Windows Live Hotmail"--should exist first as Windows accessories or as standalone attractions.

A Yahoo acquisition by Microsoft wouldn't have fixed these things. Perhaps, without the distraction of digesting this transaction, each company can focus on putting its own Internet house in order. Or--and this may be more likely--Yahoo's shareholders, having seen the payoff they would have gotten from a Microsoft purchase of the company, will push it to accept a buyout offer from some other Internet company. And in that case, whatever identity of the successful suitor (News Corp.? IAC? A newly-spun-off AOL?), the post-merger turmoil would hinder meaningful progress in Yahoo's Web portfolio anytime soon.

What's your reaction to the end of this deal: relief? anger? apathy?

By Rob Pegoraro  |  May 5, 2008; 11:40 AM ET
Categories:  The Web  
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Microsoft's branding/strategy may still be in flux, but what about Yahoo killing the number one photo sharing site in the world? Yikes. Flickr's great for the more Web 2.0 tech savvy, but folks like my mom understood the operation of the former Yahoo Photos. As long as Yahoo mail lives on (been using it nearly 10 years now), their valuation plunge doesn't concern me.

Posted by: Dave Zatz | May 5, 2008 11:53 AM | Report abuse

What was Yahoo thinking? Clearly they aren't. Jerry Yang still thinks his company is major player, not! Google has left them in the dust and must be celebrating this morning. Yahoo's shareholders should be furious at the current board.

Posted by: John B | May 5, 2008 1:48 PM | Report abuse're an idiot. Yahoo can't hold back shareholder pressure to sell, but it's Microsoft that needs Yahoo, not the other way around. Microsoft can throw all the money it wants, but it can never create a portal that rivals either google or yahoo. Even Ballmer knows that, but not you. You're just a filthy nerd, so play with your toys. You have zero knowledge of the industry, so the washington post should fire you and hire someone with brains.

Posted by: Playa | May 5, 2008 11:46 PM | Report abuse

Yahoo has been a "dead in the water" company for a long time now. I have no clue why Microsoft wanted to acquire them in the first place.

The folks at Yahoo clearly overvalue themselves.

Posted by: Mike | May 8, 2008 7:37 AM | Report abuse

Playa, you need to get back on your meds... Seriously.

Posted by: Mark | May 9, 2008 5:52 PM | Report abuse

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