Microsoft's Mulled Merger Melts

Hopes of Microsoft's successful bid to buy Yahoo melted because of price disagreements, and shareholders of the internet firm who had banked on the software giant, being the only firm with pockets deep enough to bail them out, have lost their only hold on a windfall. Microsoft had raised its original offer from $44.6 billion to $47.5 billion at $33 per share, but Yahoo had insisted on $53 billion at $37 per share. After the meltdown and withdrawal of bid, Yahoo Chairman Roy Bostock dismissed the bid as a distraction despite incurring losses in all four quarters of 2007.

Even after bringing back co-founder Jerry Yang to restore Yahoo's dominance, the effort failed to produce intended results. Yahoo focused on content to attract more audiences, its chief rival and now the internet's undisputed dominant player Google catered to what user's needed, good search results. A study undertaken in August 2007 reveals that Google carried out 37 billion searches in that month alone compared to Yahoo's 8.5 billion, resulting in Google's revenues stretching by a mile versus Yahoo's.

In the case of Microsoft, Google's growth into a billion dollar business has spilled over to Microsoft's territory - competing in its core business in e-mail and word processing; as well as advertising revenue. Despite its 90% dominance in the PC market and its robust financial resources, Microsoft knows this stronghold is getting less important; and the future of IT is in the rapidly growing mobile internet space, which Google has announced its preparedness to conquer and claim. Both seek the same market but with different approaches. Google will enable users to organize human knowledge by providing the tools; Microsoft provides tools that help users process and use information. Their battle will be at the center of the mobile space - like Star Wars.

The merger would have been an admission by Yahoo of the flaws in its attempts to turn the company around, and Microsoft's fear of Google's success. To make matters worthwhile, Microsoft has to show that combined, the merger can offer a superior business model both entities were not able to achieve as separate companies - like developing search algorithms that surpass those of Google. All these speculations are water under the bridge now. Yahoo has stuck to its position because of predictions it's value will double from $40 billion to $80 billion in 2010.

If the expected drop in share values on the collapse of negotiations do not continue till then, and the uncertainty among its investors about the management of the company is stabilized quickly, that expectation may be a dream realized. However, if the revenues decrease and losses increase; and Google leaves Yahoo biting the dust, investors may dump their shares sinking its value further. The expected movement in share values 2 years hence will still happen - in reverse!

Harrrwwwwk...Twoooooph...Ting!