» No means no, Yahoo! says to Microsoft

No means no, Yahoo! says to Microsoft

The never ending Microsoft courtship has led to another loud “No!” from the prospective bride Yahoo!

Microsoft officially gave up its quest for Yahoo! weeks ago. Disgruntled Yahoo! stock owners, seeing their potential wind fall disappear, then made heroic efforts to force CEO Yang & Co to agree to a buyout.

The Icahn rebellion

Microsoft responded by saying to stock owner and rebel Carl Icahn that they might consider a new offer if he could get rid of the present Yahoo! board and get a more sensible one. (We are quoting freely here. They did not actually say “a more sensible one”, although that is clearly what was implied).

Icahn wants to replace Yahoo’s board with nine of his own choosing, himself becoming the director of the board at Yahoo shareholder meeting next month.

The Yahoo! counterattack

Yahoo board chairman Roy Bostock calls this and “an odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo’s stockholders in mind,”

“While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.”

A Microsoft/Yahoo merger makes sense, doesn’t it?

Some may find Yahoo’s vehement refusal to consider a marriage between Microsoft and Yahoo! odd. After all, it seems like a match made in heaven. Here you have the financial clout of Microsoft coupled with the relatively popular search tool of Yahoo and Yahoo’s content rich portal features. And Yahoo! definitely needs the capital.

The fate of the board

Cynics may say that this is a board and a directorship desperately struggling to keep their positions. Indeed, the board argues that:

“The Microsoft/Icahn proposal would require the immediate replacement of the current Board and removal of the top management team at Yahoo!. The Yahoo! Board believes these moves would destabilize Yahoo! for the up to the one year it would take to gain regulatory approval for this deal.”

Fair enough, but we honestly think this is more of a cultural issue.

The great cultural divide

Yes, a merger between Microsoft and Yahoo! seems sensible, and we have ourselves argued so, but then from a Microsoft perspective. Microsoft has in spite of its enormous resources and in-house talent failed to develop a successful web presence like Yahoo! or a search engine of the same quality as Google’s.

The main reason seems to be cultural. Microsoft has failed to let go of the old PC/DOS/Windows/Office paradigm and embrace the Web for what it truly has become — something new and different that actually requires the company to think outside the Windows box.

This has even stopped the company from developing a coherent and transparent strategy for its online branding. The fact is that there are many of Pandia’s readers that do not know that the Microsoft search engine is called Live.

This is why the Yahoo! brand would be so valuable to Microsoft. They could just drop their own Live brand, and use Yahoo! for all their online properties.

Indeed, since Microsoft dropped it initial offering for the whole of Yahoo!, it has proposed to buy the Yahoo! search engine for 1 billion US$ (and offers an additional 8 billion US$ for a 16 percent stake in the rest of the company).

For Yahoo!, however, the risk is enormous. What if Microsoft does not manage the cultural switch which is needed? What if Microsoft, like AOL before it, sticks to its old way of thinking and makes a mess of it all?

What if all the bright entrepreneurs within Yahoo! (and they have quite a few) decides that they cannot stomach Microsoft bureaucracy and decide to go somewhere else — to Google maybe, or start something new. Due to the current chaos, Yahoo! is already bleeding talent. A merger could make this even worse.

Yahoo’s own internal problems

And please note: It is not that Yahoo! has been such a sensibly run company. It has not been.

Yahoo! has been a loose federation of separate units competing on the same market and striving for the attention of the management (cf. the fact that Yahoo! has never managed to merge Yahoo! Bookmarks and del.icio.us and turn the new “del.icio.us” into something wonderful).

Still, those separate units have been able to do some great things (like Yahoo! Mail), and Yahoo! remains the number 1 web property in the world. That is what the Yahoo! board and CEO Yang fears they may lose.

Giving in to Google

The Yahoo! board argues that it has an alternative strategy:

“Yahoo!â€™s existing business plus its recently signed commercial agreement with Google has superior financial value and less complexity and risk than the Microsoft/Icahn proposal.”

This says a lot about how desperate Yahoo! is. Yahoo! has spent millions on developing a separate pay-per-click ad delivery system called Panama to compete with Google’s AdWords. Now they are willing to admit their failure and sign up with the other enemy, Google, in order to avoid the embrace of the eager suitor Microsoft.

We still believe it all will end with an arranged marriage of Yahoo! and Microsoft. What we fear, though, is that all the bad blood we have witnessed the last months will make it hard, if not impossible, to merge the two cultures into a vibrant and innovative Web and search company.

That would be a disaster, because as much as we like Google, that search mastodon needs real competition to continue in its current innovative track, and we — as searchers — needs alternatives. If Ask decides to follow up on its plans to abandon its own Teoma search technology, the fall of both Yahoo! and Microsoft search will leave us with one serious alternative: Goolge.