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Microsoft May Go Hostile, Yahoo May Announce Google Search Deal

Posted by: Rob Hof on May 01, 2008

After a pretty quiet several weeks, the Microsoft-Yahoo battle is suddenly getting a lot louder. After Microsoft CEO Steve Ballmer said early Thursday he might walk out on its offer to buy Yahoo, the Internet portal floated the likelihood of a Google search ad deal. Then late Thursday night, Microsoft came right back with a leak in the Wall Street Journal that it’s leaning toward a hostile deal as early as Friday.

Sure sounds like a denouement of some kind is at hand, doesn’t it? Or not—remember, this corporate volleyball has been for three solid months now. But the more each company jabs the other, somehow, the closer they seem to be entwining themselves. It’s a conclusion Silicon Alley Insider’s Henry Blodget also reaches today.

Here’s the latest:

After a successful two-week trial, Yahoo as early as next week could go ahead with a deal to run Google search ads alongside its search results. A source close to the matter tells me the potential deal, first reported by the Wall Street Journal tonight, is “very far along” and represents a substantial step, not merely a negotiating tactic that many have assumed.

However, on a day on which Microsoft CEO Steve Ballmer again insisted he could drop the Yahoo bid if they can’t find common ground on a purchase price, there’s little doubt that, whatever else it is, this particular leak from Yahoo was also intended to put the pressure back on Microsoft. With the up to $1 billion in annual cash flow that a full-fledged Google search ad deal could bring to Yahoo, it could give Yahoo shareholders some small reason to think the company could go it alone or, more likely, prompt them to put further pressure on Microsoft to up the bid.

Earlier today, Ballmer had repeated to his employees in a town hall meeting that Microsoft could go in one of three directions—launch a hostile proxy fight to replace Yahoo’s board, come to some agreement with Yahoo, or walk away. Most observers have assumed, logically, that Microsoft won’t walk away permanently, and that a proxy fight would be more likely to be a prelude to a deal than an all-out assault on Sunnyvale. Locked in a fierce battle with Google over the future leadership of the Internet, Microsoft may not be able to afford the weeks or months of delay a truly hostile approach would entail.

According to the Journal, Yahoo and Google hope to avoid regulatory concerns by using an auction system that would run the most lucrative ads from any company, even Microsoft, that could be part of the system. I haven’t confirmed that particular detail yet, but Yahoo’s Right Media exchange might offer a path to such a system, which might indeed pass muster with regulators if it’s open to all comers. Of course, what’s open is a Google system to which everyone else becomes beholden, so it’s unlikely Microsoft would have any part of it, but appearances are what matter here when it comes to the feds.

Despite the Yahoo-Google deal, if it happens, Yahoo and Microsoft could still come to an agreement. A source tells me talks among a wide variety of people on both sides have been ongoing—talks much more extensive than have been reported so far.

It’s not clear that those talks became any more serious this week than before. But it does seem clear the two companies prefer to come to some agreement more than they want to spend the next few months gradually ratcheting up hostilities while Google steals a march on their only hope to counter the search giant, online display advertising. The hangup, as it has been from the beginning three months ago to the day, remains price.

And although it has appeared in recent days that the two sides might be closing in on a price for Yahoo stock somewhere in the mid-30s, it turns out the dance wasn’t over. As predictable as this merger minuet has been all along, the one thing that’s entirely unpredictable is when it will end.

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Reader Comments


May 2, 2008 01:24 AM

Yahoo still has a decent brand but it's not as strong as it used to be, thus i think that microsoft will just walk away.



May 2, 2008 03:30 AM

Do you sleep in Yahoo jammies?


May 2, 2008 11:13 AM

There's no way Microsoft walks away now. They will do whatever it takes to get this deal through. Bring out the switch-blades and brass knuckles, it's gonna be a bear fight.


May 2, 2008 12:53 PM

I've always disliked Microsoft Corp., it's Internet Explorer web browser, and AOL. Let them have each other and leave Yahoo to itself. I wish Yahoo all manner of profitability and success, however they need to work on their systems, it seems like there have been a lot of problems lately. Could anyone fathom electronic sabotage? Historically, Microsoft has appeared to walk away, but actually had something devious up their corporate sleeve.

D. Carela

May 2, 2008 03:03 PM

While it's difficult to see a company like Yahoo surpass Microsoft, for that matter Google, it's still possible.
The potentials are there, can Yahoo seize
the moment, and strategically advance ahead?
We'll see. I say; "don't bend Yahoo, fight and surpass microsoft".

P.S. I Don't like MS-Vista
: 0 )


May 2, 2008 05:24 PM

i also think yahoo should stand their ground.....

Vamsi M Maganti

May 2, 2008 06:15 PM

Can Microsoft Walk Out now? Yes it can , but it will not. Obviously Yahoo wants, as everyone here, more buck to its brand. No one can deny the presence of yahoo in the internet world, however declining it's profits may be. If Microsoft has to stay in the top of internet world and survive google, yahoo is the open bet.

Vamsi M Maganti


May 2, 2008 06:29 PM

Intertwined is what I see happening. The longer the talks continue the more they become "one". Google is the company in a mess. If they lose out to Microsoft, they will be next down the road. Microsoft has the resources, talent, and marketing to make this work. Google could end up like netscape: a has-been. The proof will come out within 10 days or less. And I too have Vista.


May 2, 2008 09:26 PM

I like how Microsoft pushes everyone around. It makes them so cool. Though I have to admit that they will probably harm the internet a bit. Google can't handle the presure if Microsoft begins to get the upper hand so they'll be in a constant battle which may last years with one of the biggest corporations in the world.


May 2, 2008 11:54 PM

I hope this deal work out. I will pick yahoo over google any day. V


May 2, 2008 11:56 PM

Yahoo - Hold your ground!!
You must stay as you are.
Do not let Microsoft takeover, there is a reason why no one uses there search and why not many like it.
Do not go that way.
You can be a real powerhouse without them.
As far as doing a search to find relevant products, services and websites, you beat Google, MSN and the rest.
Google has so much irrelevant trash, that I no longer use it to search.


May 3, 2008 08:31 PM

Microsoft just "Walked away" from the offer. That means a hostile proxy takeover bid that will be very expensive to even Microsoft is soon to come. Anyone wanna make any bets?


May 3, 2008 08:41 PM

Google is a monopoly as it is, if they get Yahoo it's even worse & unfair

Mr. Brooks

May 3, 2008 08:51 PM

MSN actually looks the best compared to google and yahoo. The search sucks (i think, i usually use google to search) so yahoo searching would really make a reeeally big improvement for them


May 3, 2008 09:15 PM

if they would all work together, thethree could be one of the best,and yup i do have vista

Gates Jr.

May 3, 2008 09:16 PM

Microsoft is wasting money, and billions at that. is just a website, and a few small servers. Sure, they are good, so was friendster. Then myspace wiped out friendster. My poin, Yahoo can be easily wiped out. Just let there customers save the billions instead of spend them. Why pay 11 dollar a month for a yahoo website when microsofts new website will give me pro hosting for 1$ a month? See, its easy to steal business from yahoo, no matter how big it is. (friendster vs myspace) As far as the search engine yahoo has, it needs to be rewritten anyway. If you put 10 billion into a new website platform, you could destroy yahoo and google forever. To spend 50 billion, that is waste of money. Hey microsoft, its recession, you can hire me for 1 billion a year, and i will put together a site for you that destroys yahoo, just think of all the money you will save...ahahha

Engr. Dante Silao

May 3, 2008 09:29 PM

Yahoo has already established its name , and MS wants to buy yahoo simply to use it and expand their markets and its business contacts. Yahoo should'nt give up the price they want, or they will have a big regrets when MS sour in their market share with the yahoo banner owned by the MS.Microsoft is quick in buy outs that expand their markets, like the giant anti-spyware they bought and made it built-in the MS XP OS.This time yahoo should give a real GOOD PRICE b4 they will give up their YAHOO! to MS.


May 3, 2008 10:13 PM

I hope MS doesn't get Yahoo. I bet they'd force me to use IE to check my Yahoo mail...eww.


May 4, 2008 01:19 AM

As i mentioned it previously ( see first comment ), MSFT has walked away. I had a feeling that this would occur, and i was right. Good luck yahoo.
As for Microsoft, buying small, innovative companies should be the key vs google.



May 4, 2008 09:25 AM

Microsoft scares me a bit. They have grown too rich off of their sorry operating systems, and not offering up anything viable, so I am now shifting my focus to precious metals (gold). Now, THAT is a smart investment.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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