MS proposes, Yahoo! disposes, Google cheers

PUNE, INDIA: A good deal goes by the tried-and-tested negotiator's wisdom of Saam, Dhaam, Dund, Bhed and Microsoft could have handled the first three stages better, opine analysts as they dissect and hypothesize on what could have gone wrong (or right for parties like Google) at the Microsoft-Yahoo! deal table.

"At a deal table, both parties should move. Microsoft could not move as much. Also the bid was possibly a bit too early and hence the time it could have taken Yahoo! to come to terms with the idea of a buy-out."

There are psychological reasons as well apart from strategic and financial ones as Kaustubh Dhavse, deputy director, ICT Practice, Frost & Sullivan, South Asia & Middle East speculates.

On Saturday, Jerry Yang and Yahoo!! co-founder David Filo met Steve Ballmer and Microsoft's Platforms and Services Division president Kevin Johnson in Seattle and later Microsoft Corp withdrew its offer for Yahoo! Inc as negotiations fell through on price, even after the software giant raised its bid by about $5 billion to $47.5 billion.

Microsoft ended talks on Saturday after Yahoo! asked for a higher price. Microsoft wanted to buy Yahoo!! to gain a stronger foothold in its battle with web search leader Google, which is rapidly expanding into the software maker's own turf with new web-based applications.

"They rushed past the Saam, Daam, Dund stages, a possible reason why the talks couldn't progress into a deal," says Dhavse.

Besides the price factor, there was also a question of how comfortable Yahoo! could be with its traditional rival acquiring it.

"There might have been a tendency hence, to not look at the deal dispassionately. Add to that the lobbying on Yahoo!'s side of the fence and that explains the tendency of Yahoo! to drift away," says the analyst.

It could have been like it would strike some partnerships and tide away but then Microsoft put a deadline of a hostile takeover.

The company was pursuing discussions for alternatives to the Microsoft offer, including a potential tie-up with Google for web search listings, some sources had predicted recently.

Yahoo! had previously refused to enter formal negotiations with Microsoft, saying the initial price it made public in February did not properly value Yahoo!'s search and display advertising technology, or its overseas holdings.

Yahoo! had also, according to some reports, courted a possible deal with Time Warner Inc's AOL Internet division and a search advertising partnership with Google Inc.

In a letter to Yahoo! chief executive Yang, Ballmer said he was concerned such plans would hurt Yahoo!'s own search and display advertising strategies, and impair its ability to retain talented engineers.

But why didn't Microsoft play out the takeover threat?

Perhaps it did not want to make a dent in the image, already suffering with perceptions of Microsoft being the monopolistic bully.

"Microsoft is a great marketing company. So eventually it thought of pursuing the deal logically and not forcibly," guesses Dhavse.

It's like the groom proposing for an alliance but seeing the bride not ready, he chose to walk away but may be with a message. "Bye from me. God Bless You. You may find another suitor if you wish. Meanwhile I am around," adds Dhavse on a lighter vein.

The latest development has benefited Google who stands to gain in this scenario.

With about 500 million users and the second largest ad network behind Google, Yahoo!'s shaking hands with Microsoft was an unequivocal threat for the leader of Internet advertising space.

So now what? What could this stalemate mean for the three entities? For Microsoft, it will mean time to think over and question whether Yahoo! would make a good buy.

There are many schools of though floating around. Microsoft could get back to its core forte on software and shift its acquisition radar to smaller, nimbler start-ups in the Internet space.

With the kind of bottom line concerns on Yahoo!, it could have been an expensive buy for Microsoft.

Steve Ballmer said his company increased its offer to $33 per share, from the $31 per share cash-and-stock bid that it initially made on Jan 31.

But Yahoo! was looking for $37 a share. "Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer," Ballmer said in a statement.

"After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," said Ballmer.

Yahoo! has spent three months focused on Microsoft, even as it tries to realign its own business to grapple with a loss of web search market share and the impact of a weakened US economy on its sales of online display advertising.

Yahoo! has forecast sluggish revenue growth in 2008 of three per cent to 15 per cent as an economic downturn curtails advertising in sectors like finance, retail and travel.

For Yahoo!, who is neither a winner nor loser here, it's a tricky situation.

"It's a catch 22 situation with so much reverse pressure coming onto Yang now. They will now have to use the time to get out of all this, get back to business and show profits," says Dhavse.

In course of time Yahoo! could possibly strike some strategic relationships, with Google or others.

Analysts have even predicted shareholder lawsuits on Yahoo!

Google, meanwhile, is the one for whom the break-up has been in all favor. It will give more room to consolidate its position further in the market.

Will Yahoo! get back to Microsoft? Not immediately, believes Dhavse.

"In business, memories are short. But no one likes to submit soon and appear weak. The next six months would be interesting for everyone. And if Yahoo! doesn't show profits, there can be a big pressure to be sold off."

Could it be Microsoft or Google again? Dhavse shrugs and says that it could be anyone, but yes, Microsoft and Google have the kind of money to do that.

But no one knows yet how the next few months unfold? Clearly, it's hard to guess.