If Microsoft Is in the Driver's Seat, Why Isn't It Driving the Car?

At Google’s Zeitgeist conference in Hertfordshire, England, today, the search giant’s trio at the top said they’re meeting tonight to discuss how to respond to the new possibility of a deal between Microsoft and Yahoo, something short of a full merger. Microsoft apparently proposes to buy Yahoo’s search ad business and take a minority stake in Yahoo after it sells off its stakes in Asian Internet companies, according to sources cited by Reuters and the Journal.

I’m doubtful Yahoo’s board would want to do that, if it has any say in the matter. Increasingly, Yahoo wants to integrate search and display advertising, not split them, and I think dumping Alibaba and other such promising stakes also would be a last resort. Since Microsoft must know this too, the proposal may well be a way for Microsoft to pressure Yahoo into holding off on a Google ad deal that sources have said could happen quite soon.

If that’s the case, it’s a rather defensive move for a company that’s supposed to be in the driver’s seat. Microsoft seems to keep losing its way on the road to Sunnyvale.

First there’s the real possibility of Yahoo doing some search ad deal with Google. For all the regulatory challenges Google may raise with that, they probably won’t have much effect on Google’s business compared with the potential benefit to Google for the deal to keep Microsoft at bay on online advertising.

Then there’s Icahn’s bombshell entry into the game. Most people have assumed that even if Icahn and Microsoft aren’t working together, Icahn’s statement that he aims to get a Microsoft-Yahoo back on the table would help Microsoft bag Yahoo ultimately. But Icahn’s move also makes the whole situation around Yahoo all more complicated for Microsoft, which held off on its own hostile approach for fear of Yahoo getting gutted by unhappy executives or employees or stretching out the acquisition process into a new presidential administration.

I wonder if the fear that an Icahn-led proxy fight could result in Yahoo becoming even less attractive prompted Microsoft to make this new approach toward Yahoo so soon after saying it had “moved on.” A lot of folks thought it would simply wait for Icahn to soften up Yahoo for awhile before stepping back in with a friendly deal at something close to its last offer of $33 a share. Now it’s already back chasing Yahoo instead of waiting for a newly battered Yahoo to come crawling back.

It still seems like Microsoft’s going to win Yahoo in the end. But it almost seems like it’s going to happen in spite of what Microsoft does instead of Microsoft making it happen. Strange.

What I found most entertaining today, though, was a mention in the TimesOnline of Google cofounder Sergey Brin’s promise that he would give Yahoo cofounder and CEO Jerry Yang “refuge” within Google if investors led by Carl Icahn push him out.

Now, who knows if Yang would want to work for, or with, the company that helped put Yahoo in the sorry state it finds itself in today. And from this brief account, I can’t tell what Brin has in mind, or if he’s just playing poker with Microsoft CEO Steve Ballmer (the BBC reported that Brin doesn’t think Yang would come anyway). But just the thought of having a guy still beloved by many of his Yahoo employees working inside the Googleplex has to stick in Ballmer’s craw, doesn’t it?

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