The only real surprise here is that it was Google that beat Yahoo! to the kill switch.
The rise and fall of Yahoogle
The deal started logically enough. With a stalemate in its combination talks with Microsoft
The initial test went well. Yahoo! was so encouraged that it went public with its projections for the deal to generate as much as $450 million in incremental operating cash flow and $800 million in revenue.
Then critics began rocking the boat from both sides. Webmasters who rely on AdSense, advertisers that bank on Google's AdWords, and even Microsoft started to complain. The fears couldn't all be founded. If advertisers felt that fewer competitive outlets would drive keyword bidding prices higher, publishers would be making more. The only way that both parties would lose is if Google would shave an even larger amount of the proceeds it pays back to its AdSense publishers. Would Google do that and risk alienating everybody?
Antitrust regulators couldn't ignore the smoke. They stepped in, and both Google and Yahoo! agreed to hold off on implementing the deal. The Wall Street Journal's online edition on Monday reported that Google and Yahoo! were watering down the original deal to clear regulatory hurdles, no doubt fearing defeat under terms of the original plan. The 10-year pact became just a two-year deal. An open-ended arrangement turned into a capped one, where Yahoo! would only turn to Google for 25% of its ad revenue. Would the same regulators that let the only two satellite radio operators come together in Sirius XM Radio
It's immaterial, I guess. Yahoo! and Google were spooked into hosing down the deal to the point of ineffectiveness.
"At some point, going through with this deal could be more detrimental than incremental for Yahoo!," I wrote yesterday. "We may have reached that point right now."
I guess I was right. Again, the only real shocker here is that Google was the first one to publicly walk away.
What now, Yahooligans?
So where does Yahoo! go from here? It can't go back in time, pretend that nothing ever happened, and sit on Mr. Softy's lap. The very act of entertaining the outsourcing of its ads will make it hard to keep sponsors and publishers who now see Google as the more attractive option.
Organic growth appears unlikely in the near-term, so Plan C may be drumming up combination talks with Time Warner's
Ask.com parent IAC
This naturally leads back to Plan A: falling back into Microsoft's arms. It makes sense. It makes perfect sense. However, it would be at a much lower price for Yahoo!. It also would require Microsoft to batter its shareholders the way it did when it presented its first buyout offer with another dilutive push.
This brings us to Plan E. I doubt the Yahoo! playbook runs that deep, but it may be the next sad chapter in this unfulfilling tale.
Plan E? How about Plan Everyone? Use the comment box below to describe how you would save Yahoo! at this point.
Some other articles to read before deciding what Yahoo! is really worth:
Longtime Fool contributor Rick Munarriz spends plenty of time on Yahoo!'s sites, but he does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.