microsoft’s bidder’s remorse

Posted on April 18, 2008

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Microsoft chief executive Steve Baller must hate to face “I told you so!” moments. Yet he had to endure one in a most public way yesterday.

Nobody out there really believes that the takeover of Yahoo was a good idea for Microsoft, so who was advising Microsoft again? It ought to demand the money it paid for advisory fees back.

But it seems like Steve Ballmer is only getting the full extent of the folly of Microsoft’s unsolicited $42.3 billion bid to buy Yahoo.

At a Seattle conference for Microsoft fans yesterday, Ballmer asked how many of them used Yahoo’s search pages as their main resource. Unsurprisingly, only a few souls raised their hands. What’s worse though, is that fewer of them use Yahoo than Microsoft’s own Windows Live search. Uh-oh.

(For the record, even Microsoft geeks favor Google. They responded that Google is the main search engine they use.)

Ballmer had the good humor to joke at the results of the unscientific survey of search engine use. “Wow! We offered 31 bucks a share,” he quipped.

Yes Ballmer and Microsoft, nothing like a reality check. They over-bid on a weak product. Bad move. Didn’t they notice that Microsoft’s stock fell discouragingly when news of the hostile takeover plans broke? Conversely, Yahoo’s shares surged following the news. Investors know.

Perhaps if Microsoft is still keen on swallowing Yahoo, it should work harder to get News Corporation in on the deal. The joint bid — which will plug in Myspace, fast becoming one of the most popular music downloading sites, besides being a successful social networking site for teenagers — makes better sense and looks like it could pose a stronger competition to Google.

Incidentally, Google’s better-than-expected results yesterday are not a good omen for Microsoft. Yahoo could cite Google’s healthy web advertising earnings as an example of the viability of web advertising and the potential it holds in that. Not that Yahoo has done particularly well in that area, of course, but it is the power of its potential to give Google a run for its money in the web advertising business, if the chips were properly aligned, that helps Yahoo strengthen its hand in the bargaining process.

Yahoo reports its earnings next week and analysts are not sanguine about them being anywhere as spectacular as Google’s.

Google’s CEO Eric Schmidt might have said that, “It is nice to be working with Yahoo, and we like them very much,” but there remains no way that besides the outsourcing experiment that Yahoo has done on its search advertising business with Google, the two could come together, due to anti-trust issues in the US and Europe.

Yahoo might go on fighting Microsoft’s offer but that is the best option it has. It still might not be a good deal for Microsoft to absorb Yahoo. But for Yahoo, Microsoft’s resources and its determination to take on and beat Google might be its only salvation in the long run.

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