Anyhoo, there will be no “Microhoo”

by Jeff Dorsch, May 5th, 2008, 12:22 pm

Microsoft and Yahoo! are not going to merge. At least not this month.

The news of this busted non-deal is omnipresent today. Basically, the two competitors got down to brass-tacks negotiations just before the weekend, and Microsoft was willing to raise its price for Yahoo! to $33 a share, from its original unsolicited offer of $31 a share. The respective CEOs and their seconds reportedly met Saturday morning at the Seattle-Tacoma International Airport. Jerry Yang of Yahoo! gave a PowerPoint presentation — that was thoughtful of him! — that ended with a final slide saying Microsoft’s offer still undervalued Yahoo!, and Yang couldn’t possibly consider selling his company for less than $37 a share. Steve Ballmer said no way, José, and later issued a public letter explaining why Microsoft wouldn’t increase its bid. (Here’s a funny interpretation of that letter.)

So, Microsoft isn’t buying Yahoo!, and now they have to go back to the drawing board and come up with a new way to beat Google. The Wall Street Journal today published an interesting pie chart, showing how the US online advertising market has grown from $9.63 billion in 2004 to an estimated $25.9 billion in 2008. Yahoo!, MSN, and AOL have all essentially doubled their online ad sales in that period. Their market shares (or slices of the pie) have not grown, however, as Google’s ad sales revenues have jumped more than sixfold in those four years, to nearly $8 billion this year.

I think what Microsoft management resents most in their titanic struggle with Google is that Microsoft has the public image of being the sinister monopolist, while Google wears an angelic halo in the public’s eye. Microsoft has flung piles of cash into MSN and other efforts to beat the Googleplex at search and online ads, and it hasn’t much to show for it. Throwing money at a problem rarely results in achieving a mega-goal, as we’ve seen with our government (viz., the War on Poverty, the War on Drugs, and now the War on Terror).

Yahoo!’s stock predictably dropped this morning on the big news, but this ultimately may be one of the best things to happen to the company in a long time. First, their employees won’t be forced to join Darth Vader on his Death Star, and second, they’re more in tune with the wishes of their shareholders, which should lead to other ways of increasing shareholder value, aside from selling out to a bigger competitor.