Not acquiring Yahoo
So I haven't commented on the Yahoo-Microsoft merger yet, making me probably the very last of an endless horde of clueless people to be talking about it. But the announcement that Jerry Yang will be retiring as CEO reminded me that there is still something important to say.
Quick summary: Yahoo lost the game because Microsoft set the rules.
Until earlier this year when Microsoft proposed to buy Yahoo, nobody but its shareholders had really even noticed that Yahoo was in trouble. Really, Yahoo was just sitting quietly in the background, trying not to get noticed, lest people realize that they were way overvalued and going downhill fast. People blame current CEO Jerry Yang for that situation, but that's ridiculous; there's no sign that anybody could have done any better. Google was eating their lunch; to make Yahoo more successful, they would have had to beat Google. Unlikely.
Microsoft, of course, despite their zillions of dollars selling Windows and Office, was losing the war for Internet search and advertising just as badly as Yahoo. They had plenty of embarrassment to cover.
From there, the media took over. A few people did notice the offer was dumb; how could Microsoft possibly win by buying up a known-inferior company with a known-inferior search engine? They already had their own inferior ones! But a news article about how Microsoft, which never makes collossally stupid business decisions, was inexplicably doing something collossally stupid, just isn't believable enough. So the story here has to be that Microsoft is smart, and therefore whoever they're dealing with is stupid.
You see, the whole story was written even before Yahoo found out there was an offer to buy them. There were two versions of the story: Yahoo is dumb because it jumped at the first offer (who does that??), or Yahoo is dumb because it refused the first offer (don't they know how desperate they are??).
I imagine the conversation went something like this:
Yang: Wow, Microsoft wants to buy us at a premium over our stock price! And here we were thinking we were over-valued. Let's do it!
Old, Jaded Board Member: You never take the first offer. It makes you look desperate.
Yang: But OJBM, we are desperate! Sure, we might make more money someday, but Google's slowly killing us. There's no guarantee. If we sell out now, we lock in the profits.
OJBM: It's not that easy. You think they just make an offer, and we take it, and that's it? This process will go on for at least a year, and they could back out at any time. We have to play this just right. And I guarantee you, if we accept their first offer, they'll know it's too high and they'll run away fast. The whole world will know we don't have confidence, and our stock price will tank.
Yang: But the offer is already generous. If we don't take it, they might just walk away.
OJBM: Nobody walks away in the first round just because you asked for a higher price. Everybody knows you always ask for a higher price, because the first bid is always low. If they walk away, then they were planning to walk away in any case. So we're better off if they walk away before they send in their "experts" to do their "due diligence" and learn all our company's secrets. Microsoft frequently kills their competitors by offering to buy them.
Yang: So we can't take the deal.
OJBM: Not yet, at least.
And a couple of weeks later, Ballmer "changed his mind" and decided not to buy them after all, at any price. Right.
Microsoft never wanted Yahoo, they just wanted its market share. The fastest, cheapest way to get there: help them die.
Steve Ballmer isn't new to this game, and Microsoft is smart. Scary, but smart.