Microsoft gives up: what now for Ballmer?

It's IT Blogwatch: in which we examine the fallout from Microsoft giving up on its bid to buy Yahoo! Does this mean Ballmer must go? Will it drive Yahoo into the arms of Google? What will Microsoft do with its bulging war chest? Not to mention the perils of the company picnic...

In case you've been living under a rock, Juan Carlos Perez reports:

Microsoft Corp. has dropped its nearly three-month-long pursuit of Yahoo Inc., ending a historic acquisition attempt whose failure takes Microsoft back to square one in its quest to boost its online business to better compete against Google ... Yahoo issued a statement reiterating its position that Microsoft's offer was too low. It also said that many Yahoo shareholders agreed with its position ... Microsoft said it had raised its initial bid by about $5 billion, but that didn't convince Yahoo to accept the revised offer ... All parties with a stake in the deal had been waiting for Microsoft to announce its next move after Yahoo failed to agree to a deal by last Saturday, the deadline Microsoft had set three weeks earlier ... Ultimately, it seems that Microsoft's management, fatigued by Yahoo's resistance and demands, decided that engaging in a proxy fight to oust Yahoo's directors would be an arduous and nasty process. more

Steven J. "SJVN" Vaughan-Nichols adds:

In the business textbooks of 2025, Microsoft's slow collapse will be attributed to many things. The failure of Windows Vista to hold the desktop market; Microsoft's inability to successfully move from a PC product based company to an Internet service based enterprise; and Ballmer's inability to pull off the Yahoo buyout ... Microsoft's brand is losing value; Google is beating the pants off the company on the Internet; and Linux and Apple are making gains on the desktop. Adding insult to injury, open-source programs like Firefox are gaining marketshare at the expense of Microsoft's own products ... Yes, the absolute numbers are still tiny-except in Web browsing-but Microsoft hasn't ever lost significant marketshare before ... So congratulations Microsoft. You not only totally mishandled a vitally important acquisition; you may have driven Yahoo into becoming buddies with your arch-enemy, Google. Good job Ballmer. more

Kara Swisher decodes Ballmer's volte-face:

Translation: Saturday, bloody Saturday. Redux! ... It just occurred to me today that maybe you don’t like us and I am bereft. Despite copious evidence that I am, well, somewhat of a bully, do you know that I am really a very sensitive man and cry big sloppy tears when I am all by myself alone? ... Marbles. Taking my. Home going. And if you like Google so much, why don’t you marry it? (If you do, of course, my lobbyists in Washington will be at the ready to pounce!) ... Don’t you realize AdSense is only the beginning? Don’t you see that Google will become self-aware in 2012 and start to build cybernetic organisms (living tissue over a metal endoskeleton) to send back and hunt down our future human leaders? ... If you prick us, do we not bleed? If you tickle us, do we not laugh? If you poison us, do we not die? And if you wrong Microsoft, shall we not revenge? more

But Henry Blodget says Yahoo! should go ahead with a Google outsourcing deal:

Yahoo's search partnership with Google (GOOG) played a major role in allowing the company to fight off Microsoft (MSFT). By offering the hope of immediately higher cash flow, it should also stop Yahoo's stock price from falling back to the teens ... part of the reason the outsourcing deal makes sense [is] it allows Yahoo to focus on businesses it can win, instead of throwing money at a war it has already lost ... It's a "now and forever" decision--there's no going back ... Query share is all that matters--and Yahoo's down to 20% ... Does Yahoo realistically believe that continuing to invest in Panama will allow it to start regaining query share? ... No way ... [so] Yahoo should go ahead and outsource and get as much profit as it can out of search while it still has some share. This is what AOL did, and this decision, at least, was a sane one. AOL's outsourcing hasn't stopped the loss of AOL's query share, but AOL would have lost this anyway. Bottom line, if Yahoo is finally ready to wave the white flag on query share--which, by now, it should be--then outsourcing makes sense. No sense in continuing to fight a battle you have already lost. more

Michael Arrington follows the money:

The big rumor around the valley is that Yahoo is frantically trying to negotiate a deal with Google to outsource search advertising and get it announced before the markets open tomorrow ... It’s not clear that Google still wants to do such a deal now that the immediate threat of a Microsoft/Yahoo deal is gone. The reason - the almost certain regulatory review ... And even if they are still willing to talk, Yahoo has lost the lions share of negotiating leverage. That means a lower revenue share, a shorter term deal, etc. ... Yahoo’s true market value today remains in the $19/share range, or about $26 billion, now that the Microsoft crutch has ben removed. A good chunk of that - $10 billion or so - is actually from their Alibaba and Yahoo Japan holdings. So Yahoo and Google may do a deal or they may not - but either way it isn’t going to help Yahoo’s share price as much as they hope ... To say that shareholders are angry is an understatement. They made it clear to anyone who’d talk to them that they would be more than happy with Microsoft’s $33/share final offer. more

Danny Sullivan calls it, "Microsoft's $5 Billion Mistake":

If Microsoft's walkaway from the Yahoo deal is indeed a ploy to save $5 billion, Microsoft CEO Steve Ballmer may have proven himself pennywise and pound foolish. He was prepared to spend billions to finally make Microsoft a serious rival to Google. For a bit more, he may have destroyed Microsoft's chance to get there ... Microsoft's basic problem is this. After five years of going after Google in search, Microsoft has failed to make a dent ... Maybe Microsoft will still get Yahoo. Certainly Ballmer's letter, annotated below, sends a warning that steps Yahoo thinks it can take to remain independent may backfire. Perhaps Yahoo's stock will plunge, and along with lawsuits, cause a change in Yahoo's board that makes a Microsoft deal ultimately happen ... Microsoft has no brand in search. It literally has no brand. Relatively speaking, virtually no one knows what Live Search is. more

Fake Steve Jobs shakes his head

The truly scary take-away from all this, however, is what this botched attempt says about Ballmer as a CEO and Microsoft as a company. The Borgflacks have spent the better part of the past decade trying to change the image of their monstrous overlord. They've worked their asses off to make the Borg appear more friendly, more open, more willing to learn from others. This is straight out of the PR 101 playbook ... I'll try to put this politely. He looks like a ****ing idiot ... This is now what passes for the Microsoft business plan? ... This, then, is what Microsoft has become. A pathetic, impotent, washed-up old giant, easily rebuffed. It might almost be funny if it weren't so sad. more

And finally...

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Richi Jennings is an independent analyst/adviser/consultant, specializing in blogging, email, and spam. A 21 year, cross-functional IT veteran, he is also an analyst at Ferris Research. You can follow him on Twitter, pretend to be Richi's friend on Facebook, or just use boring old email: blogwatch@richi.co.uk.

Previously in IT Blogwatch:

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