What a long strange trip it's been.
Three months after Microsoft offered $31 per share for Yahoo, and after many seed stories in the Wall Street Journal and New York Times about who was running hot and cold about what, Microsoft has withdrawn its offer for No. 2 search provider Yahoo.
The chief reason? Microsoft is concerned about Yahoo's recent test of, and subsequent inclination toward, outsourcing its paid search to Google.
This means what Google and Yahoo did, which they posed as a little innocent deal that would boost both companies' bottom lines, was a masterful stroke and major deterrent toward Microsoft bidding for Yahoo.
And I don't know that anyone saw that coming. We in the media and blogosphere have been following the Google-Yahoo pact, which was announced April 9, as an inconvenience for Microsoft, but I don't know that anyone expected it to be the king fly in the ointment.
See, many of us believed that the Department of Justice, which is said to be examining the deal because it could constitute collusion, could quash the deal.
The deal was too conveniently timed during Microsoft's increasingly hostile advance to be perceived as anything but a chess move to block the behemoth.
Microsoft quickly alleged the deal would give Google 90 percent of the search ad market. But I don't think anyone expected Microsoft to withdraw because of it. We figured it'd work around it. After all, isn't Yahoo too valuable for Microsoft not to make a play for it?
Now it seems the deal, which was allegedly going to generate a $1 billion cash flow for Yahoo, was Microsoft's motivation for walking away, according to what my Microsoft Watch colleague Joe Wilcox reported late Saturday.
Microsoft, according to what CEO Steve Ballmer wrote in this letter, believes the Google-Yahoo deal and other unnamed hostile actions meant Yahoo had no intention of playing nice with Microsoft and that Yahoo's talks were just talk, higher asking price or not.
Increasingly, it's clear Microsoft doesn't want a Yahoo whose search has Google's paw prints all over it. That sort of defeats the purpose of buying Yahoo to get closer to Google in the search market, of which Google proudly pockets about 60 percent.
With Yahoo, Microsoft's measly 10 percent search share would triple but still be half of Google's. But a Yahoo who is handing over its real estate to Google's search is clearly unappetizing for Microsoft, which means that all of those who asserted the deal was mostly about search were right on the money (Danny Sullivan, et al--nicely done).
That makes Google the winner, and even more ingenious than we all thought. Google's ability to manipulate markets is amazing. The company shook up the 700MHz wireless spectrum market by merely bidding; now it has shaken the search market by thwarting Microsoft.
Ballmer has said he believes Microsoft could grow search ad advertising share organically, but no one believes it will do enough to truly compete with Google, which is what made Yahoo so important.
Now the altar is empty, with Google grinning as the devious high priest of ceremonies. If I were an artist I might be inclined to play upon the scene in "Indiana Jones and the Temple of Doom," where the evil priest rips out the hearts of poor victims for sacrifices. Google is that priest, standing tall, with Microsoft's bleeding heart in its hands.
Normally, I'm much inclined with Joe, who blasts Yahoo's messaging, or lack thereof regarding this deal in the last few weeks. He correctly argues that Microsoft said all of the right things, or at least appeared to communicate the most of late, but he takes issue with Yahoo's relative silence.
I see it a different way. My perspective is that Yahoo has let its stream of product announcements and deals, such as the Google-Yahoo outsourcing test, do the talking.
I stand by my assertion that the YOS (Yahoo Open Strategy) plan is a great strategy for making Yahoo the dominant social network, and if it can make money selling ads on that platform, it could save itself a year from now, but now the best laid plans are in motion; execution will be key.
Joe says Microsoft's ditching will leave it in shambles; I say it paves the way for a new three-horse race in the next Silicon Valley Derby, with Google comfortably running in the inside track. Also, something tells me this won't be the last we'll hear of Microsoft on the Yahoo front.
What do you think the next move will be?