It's not just Yahoo! (Nasdaq: YHOO ) paying the price for the blown Microhoo deal.
Microsoft's (Nasdaq: MSFT ) Kevin Johnson, who headed up the software giant's platform and online services divisions, is leaving the company to serve as CEO of router rooter Juniper Networks (Nasdaq: JNPR ) .
It was Johnson who sparked the Microhoo speculation last November, when he revealed that it was his company's goal to grow its slice of the search query market from 12% to 30% over the next few years. Since Google (Nasdaq: GOOG ) commands nearly two-thirds of the market, analysts figured that the only feasible way for Microsoft to get within spitting distance of its target would be to acquire Yahoo!.
Logic won out. Two months later, Microsoft was going public with its unsolicited offer for Yahoo!.
Johnson's exit leaves Microsoft at a crossroads. The company's online services are growing respectably, while also losing gobs of money. It doesn't get much better on the platform side, where the company has to persuade computer users to upgrade to Vista instead of bolting for the stylish simplicity of Apple (Nasdaq: AAPL ) .
"In the competition between PCs and Macs we outsell Apple 30-to-1," notes Microsoft CEO Steve Ballmer in a company memo explaining last night's reorganization. "But there is no doubt that Apple is thriving."
Johnson's vacated role will be split in two, with three executives reporting directly to Ballmer on the Windows/Windows Live platforms. A new senior leadership position will be created to head up the profitless online-services division.
The executive shakeup doesn't necessarily mean that Microhoo is toast. Ballmer explains that acquiring Yahoo! would have been more a tactic than a strategy. It would have helped the company ramp up its search queries faster, but Microsoft "will get there with or without Yahoo!."
Ballmer would probably have left out the "with or" if the chance was nil that Mr. Softy might make another stab at Yahoo! at a lower price in a few months.
The moral of the story is that Microsoft is also hurt, even if it was the one to walk away from the table first. It is unlikely that Johnson's departure will create the massive wave of defections that we have seen at Yahoo! in recent weeks, but going by the rumble in Microsoft's belly, it appears that it left hungry too.
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