Yahoo: All that hedging for nothing

As I mentioned in the conclusion of Microsoft 2.0, I had just submitted the final version of my book manuscript a week before Microsoft announced its $44 billion bid to buy Yahoo.

Disbelief was followed by utter despair — and not just on Yahoo CEO Jerry Yang’s part. All I could think on February 1 was I was going to have to go back and revise every single one of my 300-plus pages.

I did go back in and update my chapters to reflect the possibility Microsoft might end up buying Yahoo. Then I revised again to say Microsoft did buy Yahoo (given that much of the press in February made it sound like it was pretty much a done deal). Right before my drop-dead go-to-printer date, I revised one last time, saying that Microsoft might or might not buy Yahoo.

Well, as we now know, on May 3, Microsoft withdrew its takeover bid, after being unwilling to meet the higher per-share price that the Yahoo board was demanding.

As I noted in the book, if Microsoft had bought Yahoo, it would have taken the companies years to integrate. While Microsoft officials were predicting an almost immediate impact on their shared online services/online advertising strategies, few outside observers believed that the buy would result in any immediate changes — in Microsoft’s Online Services Business or any other parts of the Redmond software maker.

I think Silicon Alley Insider Henry Blodget had the best analysis of why a Microsoft-Yahoo combination would take forever (if ever) to begin to gel. Based on comments from many Softies, Yahoos and industry/market watchers, Microsoft’s ultimate failure to buy Yahoo may have been the best thing that could have happened to MIcrosoft, for a variety of reasons. The dissolution of the deal does beg the question, of course, of what Microsoft now plans to do to build its online ad inventory (and search market share) — the primary reason Ballmer & Co. said they wanted the deal in the first place.

Will Microsoft swoop back in later this year and try to buy Yahoo again? Will the Redmondians buy another online-advertising player instead? Will Microsoft do the seemingly unthinkable and completely withdraw from the online advertising business? Stay tuned….

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