Back to the Starting Line

By eWEEK Staff  |  Posted 2008-05-09 Print this article Print

Microsoft's decision to withdraw its offer for Yahoo probably saved both companies a lot of grief, but the months-long soap opera also weakened both companies to some degree and returned them to where they were before it all began-trying to figure out how to carve out some space in the online marketing arena now dominated by Google.

"If you're Google, you have to ... have a smile on your face," said Laura DiDio, an analyst with Yankee Group. Google officials won't get complacent, "but this buys you time. Your opponents ... have not only been weakened, but they'll be distracted by deciding what will be the next move."

Analysts said Microsoft and CEO Ballmer will have to readjust their vision, but that the company is already holding some major assets, including its diverse product portfolio and the hundreds of millions of users it does business with every day.

The real pressure now is on Yahoo CEO Jerry Yang, who made various moves to prove to Microsoft and the industry that his company is worth more than the $33 per share that Microsoft finally ended up offering. In the end, Microsoft said no, and now Yang must hope that the various initiatives he put in place will push his company forward, particularly in light of the 15 percent or more drop Yahoo's stock took after Microsoft announced its decision to drop its bid.

For a timeline of Microsoft's pursuit of Yahoo, click here. 

Yang also has to decide how to handle a skeptical group of shareholders, half of whom wanted the deal to go through and more than half of whom also own stock in Microsoft, DiDio said. Already, class-action lawsuits have been filed against Yang and Yahoo's board for failing to make a deal with Microsoft.

"Yang is really in the hot seat," DiDio said, adding that if Yahoo's competition was anything but a red-hot company like Google, its situation would be considered favorable. "[Yang's] initiatives, again, in any other market and on equal footing with the competition, are good. But in this market, good enough is not good enough."

Charlene Li, an analyst with Forrester Research, agreed.

"With the Microsoft acquisition threat fading, Yahoo has been given a reprieve, but it must explain and execute on a strategy that supports their belief that the company is worth $37 a share-or face another round of acquisition attempts and shareholder revolt," Li said in a blog post May 4.



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