Congratulations to Steve Ballmer. Not many CEOs would have the nerve – humility, cold-bloodedness, whatever – to float a gotta-have takeover offer, then back away over the difference between $33 and $37 a share.
Not many CEOs would have been willing nakedly to advertise strategic vulnerability and faulty execution vis-a-vis a rival like Google, then fail to consummate the deal marketed to investors as the remedy for that vulnerability and faulty execution.
Even more so because of Mr. Ballmer's Murdochian approach: He came at Yahoo with a rich 62% premium designed to foreclose a rival suitor and confront the Yahoo board with a choice of accepting Microsoft's terms or serving up a big ugly stock price drop to Yahoo's suffering shareholders. By laying such a dramatic premium on the table, he also sent a message to his own Microsoft shareholders that said: "This is the only way I see forward."
But Mr. Ballmer didn't count on Jerry Yang, whose idea of what his company was worth became inflated by the perception that Microsoft needed it so much. When Mr. Yang said Microsoft's offer "undervalued" Yahoo, he meant it underestimated Yahoo's value to Microsoft, not to anybody else.
In a fashion, he outsmarted not only Mr. Ballmer but his own Yahoo shareholders and board. Having discovered how much Yahoo was worth to Redmond (and no one else), he set about destroying that unique value by ceding Yahoo's position in search to Google through an outsourcing deal.
All this so Jerry Yang can fulfill his dream of having an independent Yahoo whose halls he can continue to walk as the revered "founder."
Luckily for him, the media are too busy obsessing about the severance dished out to various Wall Street executives to make him the new poster boy for high-handed, unaccountable CEOs.
For his part, Mr. Ballmer's retreat was a rarer sort of act. Yahoo's value to Microsoft, after all, was as a weapon to impede Google's assault on Microsoft's core business, for which Microsoft could afford to pay almost any price.
A Yahoo acquisition would have allowed Microsoft to buy a position in Web eyeballs with which to attack Google's margins if not Google's market share. In turn, Google would have to think twice about throwing money regardless of potential return (as Microsoft itself was known to do) at undermining a rival's business model.
It was a plausible strategy. Then again, Microsoft might have ended up spending years and billions to build a Maginot Line.
Post-Yahoo, Mr. Ballmer says his company's counter-Google strategy remains intact; it will just be slower-going without Yahoo. But Microsoft here is perhaps showing too little imagination – or throwing up a smokescreen.
The alternative? The bravest would be to spin off Windows. Vista, its latest output, was not a triumph, even if Microsoft claims to be content with sales of the new operating system sold so far. InfoWorld, a magazine of corporate technology managers, has collected thousands of online signatures begging Microsoft to delay retiring its previous Windows version, XP, without which they'll be forced to upgrade and buy expensive new computers they don't want.
A liberated Windows unit could concentrate on developing the more streamlined and diverse operating system products the market wants (some of which could be supported by advertising), and it would still be a fabulous business for Microsoft shareholders. Meanwhile, the other Microsoft could devote itself wholeheartedly to building application businesses for the Web age, even an Office-based network for delivering ads and other services in competition with Google. With its $26 billion cash pile, Microsoft could set itself up as the host for an array of cutting-edge Web services being created by new start-ups, rather than trying to outgoogle Google in the search market.
Moral victories don't count for much with the stock market, but let's give Mr. Ballmer his moral victory. Big Yahoo investors like Capital Research's Gordon Crawford are slinging spitballs at Mr. Yang. Mr. Yang, in legal jeopardy, is spinning a tale about how Microsoft was the one that botched a deal. Yahoo's future as an "independent" company would seem to mean vassalhood to Google.
But "I told you so" doesn't brace up the Windows/Office fortress or throw a banana peel under an advancing Google. More interesting than Yahoo's fade to irrelevance (see you in Delaware Chancery Court!) will be Mr. Ballmer's Plan B.
By: Holman Jenkins, Jr.
Wall Street Journal; May 7, 2008
