As of Saturday afternoon, Steve Ballmer no longer wanted to do this deal at any price.
That's why the $33 offer seemed "purposely vague"--because Steve
wasn't really committed to it. That's why Microsoft walked just after Yahoo finally came to its senses and started to move on price. That's why Yahoo is now telling this story to anyone who will listen--because the mercurial Ballmer really did get over this deal.
(What Yahoo isn't saying, as it rolls out its global don't-blame-us campaign, is that OF COURSE Steve Ballmer is over this deal. For this merger to have a chance of working, both companies have to charge into it with 100% enthusiasm. For the past three months, however, Steve Ballmer has watched as:
1. Microsoft's shareholders and employees have peed all over the
deal.
2. Yahoo has peed all over the deal.
3. Yahoo has done everything short of auctioning off the furniture to concoct ANY FUTURE BUT the deal.
None of which is conducive to 100% enthusiasm. If you were Steve Ballmer, wouldn't you have lost interest, too?

For Steve and Microsoft this was the deal that could not fail. They were placing all their eggs and the chickens that laid them into the one basket and it had to work out. With Yahoo's woeful handling of the deal it was obvious that this was never going to be a success. There's nothing wrong with using negotiating tactics espeically in Yahoo's position but you better make sure you know what you're doing. The threat of leaving Microsoft with a company that was a shadow of the shadow it was in January when the offer was made was absolute stupidity. Jerry cannot talk about being willing to sell when he was pushing deals with Google a mere days before the withdrawl. Yahoo got what it deserved and I can see much worse on the horizon. Steve needs to look elsewhere on the net for a different style of company. A company that can bring real innovation and enthusiasm into the Microsoft family.

Labels: Google, Jerry Yang, Microsoft, Steve Ballmer, Yahoo

I don't like to blow my own trumpet but it happened exactly as I said it would here. Microsoft offered the $33 increase and Yahoo were nice enough to reject it. This gave Microsoft the opportunity to walk and when Yahoo started talking about outsourcing to Google Steve knew he could without losing face. A Yahoo that's been decimated by Jerry is not worth fighting over. It's become obvious to many that Jerry would rather kill his baby than see it thrive under Microsoft ownership. Make no mistake Yahoo would've become the web brand for Microsoft and would've been allowed to thrive. Steve would have to ensure it did because shareholders would not let them waste such a massive expenditure.

So what's next? Well for Yahoo we might see the end of Jerry. The AGM will probably be called very soon and assuming the shareholders aren't too upset at a management team that put their personal feelings in front of what's good for business then Yahoo will continue as is for a while longer. I can see a Q2 and Q3 full of problems and a possible new Microsoft offer next year after Jerry loses his job at the AGM.

Microsoft now need to seriously consider buying up companies like Twitter and perhaps looking at a deal with AOL. Time-Warner will be happy to get rid of AOL and Microsoft will gain a useful entity, user-base and engineers who will be more open to Microsoft being their masters. I think it's time to get rid of MSN or certainly redesign it. The site needs to start incorporating more things for users to do and start becoming more social. The Live and MSN brands have fragmented Microsoft's offerings too much, it's time to bring them together. Microsoft can use the $44billion to produce a much better product than they would've bought but they need to start now.

Labels: Google, Jerry Yang, Microsoft, Steve Ballmer, Yahoo

I read through a posting by Silicon Alley Insider today which offers a solution to the Microsoft-Yahoo standoff and it makes perfect sense, the full post can be found here.

Basically the plan is outlined in 10 steps:

1.  Jerry, fly up to Redmond this afternoon and have dinner with Steve. Just the two of you. No bankers, no lawyers, no colleagues, no advisers.

2.  Jerry and Steve: Agree on the following:

• Both of you are getting your butts kicked.
• Both of you have tried for years to change this situation and have failed to do so.
• Both of you need to do something radical.
• Combining forces is smart.

3. Jerry, persuade Steve that a straight acquisition of Yahoo by Microsoft would be a disaster for both companies. (Read this post if you'd like an outsider's perspective on this). This will be a tough sell: Steve will want to kill himself before he admits that he won't eventually be able to crush Google through money, power, energy, and relentless effort.  He will not want to hear that acquiring Yahoo will be a disaster. He will offer extremely compelling explanations about how Microsoft understands the integration and retention challenges, the morale challenges, the focus challenges, the internal-conflict challenges.  So it's time for some relentless persuasion of your own. Don't back down, Jerry. If you leave the dinner table without persuading Steve of this, your Yahoo baby (and Steve's Internet business) will be toast.

4. Jerry, float a better idea--a way to combine forces that avoids all of the problems of a straight acquisition:

• Microsoft and Yahoo combine their Internet forces and assets in a stand-alone company called "Yahoo"
• Microsoft will trade its Internet division and $10-$15 billion in cash for 51% of the combined company's stock (resulting in an overall valuation similar to Microsoft's $45 billion offer). 50/50 would make sense, but Steve won't agree unless he has control, and Steve holds more cards.
• Microsoft will control a majority of the board.
• The new board will immediately decide on the combined company's management team, and that team will immediately take control of the company. Not in early 2009. Now.
• Steve will be chairman of both boards.

5.  Jerry, persuade Steve that, for the following reasons, this is a far better idea than a straight acquisition:

• No deal purgatory
• Less dilution and risk for Microsoft shareholders
• Less of a tax hit for Yahoo shareholders.
• Stand-alone company will be free to do whatever is necessary to maximize the value of its own business, without having to worry about whether this hurts Microsoft's core business.
• Stand-alone company can grant stock options and hire and retain top talent who don't want to hitch their wagons to Windows and Office, be employees number 79,862 and 79,863, and work for Microsoft.
• Stand-alone company will avoid the bureaucratic nightmare of having to fight for resources from a senior team who are also worried about fate of Windows, Office, Xbox, etc.
• Stand-alone company won't have to compete with IBM, Oracle, Software-as-a-service vendors, Sony, Apple, and Research in Motion in addition to Google.
• Stand-alone company will have a massive war chest and will be able to compete with Google for acquisitions.
• Microsoft will have control and the ability to buy the rest of the stock if it later determines that a fully consolidated Yahoo is preferable.
• Microsoft and Yahoo will be able to share technology and expertise in ways that benefit both companies (senior Microsoft management can facilitate this).
• Microsoft doesn't need to do everything itself: Microsoft's shareholders will benefit from the success of this combined entity (as will Yahoo's), even if the entity ends up hurting Microsoft's core business.

7. Jerry, bring Steve a copy of The Innovator's Dilemma and ask him to read it before he goes to sleep. Suggest he focus on the chapter that describes how some companies have successfully resisted being disrupted (by creating stand-alone entities that are free to destroy the mothership).

8. Jerry and Steve: Shake hands and agree to hammer out such a deal.

9.  Go to sleep, wake up, call the lawyers/advisors, and tell them to smooth out the details.

10. Announce the deal.
Will this guarantee success? No. The new Yahoo will still have to execute superbly. But this arrangement, unlike a straight acquisition, will "maximize potential value" for both companies' shareholders.

Unfortunately it'll probably never happen, though in the tech world the strangest things have a habit of happening, but it really is a well thought out solution and would save both companies from the disastrous deal that is currently on the table. Personally I'd rather see News Corp. try to prop up the dead weight of Yahoo! than see Microsoft's online division collapse under it.

Labels: Jerry Yang, Microsoft, Silicon Alley Insider, Steve Ballmer, Yahoo