Dear Abbie,
Why am I such a bum magnet? I just came out of a rocky -- and, sadly, one-sided -- three-month relationship. It was a very rough time for me. Most of my friends thought I was wrong to pursue the object of my affection/infection. I lost an unhealthy amount of weight. To make it work, I was willing to spend more money than I had, risking the fortunes of those who believed in me the most, but even that wasn't enough.
Sensing that this relationship wasn't going anywhere, I broke things off earlier this month. Then another guy moved in. He couldn't offer her more than I did. Quite frankly, no one can. However, he came in as a commissioned matchmaker, betting that he can make it work between the two of us, profiting handsomely in the process. I thought I was over her. I was ready to move on and live my life. However, now that this guy is threatening to change her, I find myself wanting to rescue this damsel in distress.
I believe that we may be able to work something out, at least as friends. There's nothing wrong with that, is there? We can start seeing each other platonically. If anything happens after that, we'll both deal with the consequences, implications, and bar tab.
Am I wrong? Am I being used? I need to know.
Signed,
Restless in Redmond
Dear Restless,
You're not wrong. You're just stupid.
For starters, you're writing a financial analyst instead of an advice columnist. More importantly, I know it's you, Microsoft (Nasdaq: MSFT). You're not fooling anybody. Does anyone but you still use Hotmail these days?
The pop art of the deal
You're a lousy negotiator, and now your shareholders will have to pay the price. You are the only one bidding on Yahoo! (Nasdaq: YHOO). You know that, because Yahoo! was swinging on the front porch for three months and not a single gentleman caller showed up.
Mr. Market roughed up your share price after your initial $31-a-share offer for Yahoo!, telling you what the investment community thought of you overpaying for the stuck search engine.
In a moment of clarity, you turned on the egg timer. You gave Yahoo! three weeks to accept your offer, threatening to come back with a proxy battle at a lower price.
Then you blinked. You let the deadline lapse, but still, you stuck around. In fact, instead of lowering the offer, you actually made a higher offer of $33 a share. How do you expect to be taken seriously?
You blinked again yesterday, by sticking around after you said you were through courting Yahoo!.
Ellison, my aim is true
If you spoil potential purchases, you'll be as bad a parent company as you would be a parent. Really.
Oh, and you'll also overpay dearly for the forgery that you are mistaking for a garage-sale Picasso.
Oracle's (Nasdaq: ORCL) Larry Ellison knows all about making the deal. The leading enterprise software company has spent $30 billion in 42 acquisitions since 2005. Does Ellison overpay? Sometimes. He had to up the ante to get BEA Systems.
Then again, Ellison can also begin circling with the best of vultures, waiting to take the opportunistic peck, like he did with Siebel Systems. This is what Yahoo! should have been to Microsoft. It was Yahoo! that was surrendering market share to Google (Nasdaq: GOOG) and posting consecutive years of profitability dips.
Unfortunately for Microsoft, it is now the one being portrayed as desperate. You can't blame the media for turning Mr. Softy into roadkill, given its nasty habit of playing hardball with soft mitts.
Let's make a deal
"Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!," Microsoft declared in a statement yesterday, before opening the door for a potential buyout down the road.
I don't have a problem with the first part of that message, but how will that work exactly? If it takes on the form of an ad-outsourcing partnership -- like Yahoo! has been toying around with through Google -- who will be serving whom?
Yahoo! serving its ads through the smaller MSN would be an improvement at Microsoft, and quite possibly the key to finally turning its online arm profitable. However, it comes at the price of Microsoft's in-house ad sales efforts losing credibility. The same thing would happen the other way around, and Microsoft would have to treat it as a loss leader if it would have to subsidize the syndication of its ads through Yahoo! at a rate commensurate to what Google can probably deliver.
That leaves the only real solution as both companies pooling their resources together to cross-sell ads, similar to what Yahoo! and CNET Networks (Nasdaq: CNET) did last month.
The problem with that is that two laggards won't combine to make a leader. More importantly for Yahoo! investors, the stock is priced at a valuation premium to faster-growing search engines like Google and Ask.com parent IAC (Nasdaq: IACI) because of its Asian investments and buyout potential.
Playing nice with Microsoft won't result in a bottom-line explosion to justify today's stock price, and may hamper Yahoo!'s relationship with weary Asian partners like Alibaba.
So where does this end? Well, it ends when Microsoft starts meaning what it says. Grow some backbone, Restless in Redmond. At the very least, brush up on game theory. You sell enough Xbox consoles to know that you don't make a move unless you know what the game's response will be.
You have the power to turn your online arm profitable on your own. It doesn't rely on saving Yahoo!. You're just not thinking hard enough.
I'm hoping my next letter will be not from Restless in Redmond, but from Redless in Restmond.
