April 30, 2008
MicroHoo enters the Twilight Zone
What should we make of the odd limbo into which Microsoft’s pursuit of Yahoo has fallen since the weekend, when it failed to follow through on a threat to go hostile? Here are the possible answers:
1. The two sides are just buying time while they stitch up a deal behind the scenes. Probability: miniscule. We’re still hearing that there haven’t been any discussions since early last week. When the bankers from both sides put their heads together at that point there was still no serious talk about price (one source suggests nothing has changed since day one, with Yahoo still holding out for $40 a share and Microsoft unwilling to budge from its opening offer, which is now worth more like $29.)
2. Microsoft is getting ready to walk away. Probability: a bit higher than miniscule, but not much. Proponents of the walk-away scenario hold that Microsoft has grown disgruntled at being rebuffed and that dissent in its own ranks, where a Yahoo deal is viewed with dread, has dulled its appetite. This sounds too trite. The move on Yahoo is a huge break with Microsoft’s past: the enormity of it points to how vital it is to control one of the Web’s leading advertising platforms (this could eventually become an important monetisation engine for much of its core software business as it moves online.) This takeover approach was not mounted on a whim. Whatever Steve Ballmer’s other character flaws, a lack of resolve is not one of them.
3. Microsoft is still trying to decide how tight it can turn the thumbscrews on Yahoo without incurring a backlash. Probability: Pretty high. The software company has shown an uncharacteristic restraint all along. There have clearly been people in the Microsoft camp who would have gone in all guns blazing from the start, but that is not how Ballmer has chosen to play it. He has probably calculated that there is a better chance of reeling Yahoo in faster by not forcing it to throw up the defences against a hostile bid. Ballmer was on the road in Europe last week, arriving back only over the weekend - after the Saturday deadline he had set three weeks before had already passed - so it makes sense to deliberate thoroughly on this before taking what could be a critical step. The next turn of the thumbscrew seems imminent.
4. (My favourite explanation.) Jerry Yang just had a baby. Maybe Microsoft just decided to take the heat off for a couple of days. Wouldn’t it be nice to believe that was true?
