How Microsoft's bid galvanized Yahoo...and Google


The Microsoft/Yahoo deal remains at a stalemate, but whether or not an agreement is consummated, Yahoo is going to end the process a very different company than when it began. Speaking Monday at the Interactive Advertising Bureau's annual meeting in Phoenix, Yahoo co-founder and CEO Jerry Yang at first deflected questions about Microsoft's unsolicited $44.6 billion buyout bid, which Yahoo formally rejected: "Everyone has read what we are doing, so there is not much to report," Yang said, according to The New York Times. "We have taken the proposal Microsoft delivered to us very seriously. We made a public statement why we not accepted the proposal." But then Yang suddenly turned reflective, saying "In many ways it has been a galvanizing event for all of Yahoo. Our board, which has been a very independent board, is spending a lot of time understanding our alternatives." He also commented on "the number of people who talked to us about what this could mean for the industry…[these talks] give me a lot of encouragement. We are trying to make sure Yahoo goes to the right place for our customers, our employees and above all our shareholders."

But the longer Microsoft and Yahoo continue their game of chicken, there's a growing sense that regardless of the outcome, the big winner will be Google. Analysts argue that the uncertainty facing the Microsoft/Yahoo deal is creating a huge opening for Google to exploit: "In the interim, we foresee disarray at Microsoft and Yahoo," writes Susquehanna Financial Group analyst Marianne Wolk in a note. "We believe the deal has distracted the engineers." Managers at both Microsoft and Yahoo have reportedly instructed employees to keep busy, reassuring them that everything remains business as usual. But Wolk says the uncertainty "should benefit Google over the next 18 to 24 months, providing a major opportunity to advance in branded advertising"--assuming a Microsoft/Yahoo deal wraps in early 2009 at the soonest, she says the delays afford Google an enormous opportunity to "extend its lead in search monetization" and assume a "major lead in emerging growth areas, such as video advertising, mobile and local advertising." Most important, Wolk forecasts Google will be able to cherrypick top Microsoft and Yahoo engineers "as they fear for their jobs in a consolidation," pointing to employee blogs as proof employees face "a growing fear of layoffs." In other words, Yahoo's board members aren't the only ones weighing all their options. -Jason