Ballmer Batting Eyelashes at Yahoo!

Microsoft CEO Steve Ballmer kept hopes of Yacrosoft alive today with this announcement at a conference on the East Coast:

"We offered $33 bucks (for Yahoo) and it's $11 today," Ballmer said. "It's clear Yahoo! didn't want to sell. They probably still think it's worth more than $33 a share. I still think it makes sense for their shareholders and ours."

Then, later in the day a Microsoft spokesman said this:

"Our position hasn't changed. Microsoft has no interest in acquiring Yahoo!; there are no discussions between the companies."

It appears that for the moment the Yacrosoft buzz is coming from Steve Ballmer, but has yet to materialize in any substantive negotiations. Still, this could signal the beginning of negotiations for Yahoo!'s depressed stock. The following questions remain:

• Will Yahoo! even sell to Microsoft?
• Will Yahoo! continue to set unrealistic expectations for its share price?
• Will a merger between Microsoft and Yahoo! foster greater competition in the paid search market?
• Will Microsoft be incorporate Yahoo!'s service with its own web offering without causing major damage to both brands in the process?

I raise this last question because it's unclear to what extent Yahoo! and Microsoft--when put together--create synergies. First of all, many of their offerings overlap, which creates the problem of brand confusion and/or user cannibalization. Also, one of Yahoo!'s greatest intangible assets is its newly found image as the high-profile underdog in the web space. By becoming a part of Microsoft, Yahoo! will not only continue to languish behind Google in the onlin ad space, but it will at the same time be associated with Microsoft, a company for which very few internet users will have sympathy in its current struggle. In fact, the response from the tech company will go in the opposite direction. There will be a considerable flight from Yahoo!'s services under a Microsoft regime.

I have nothing against Microsoft. I think they do a fair job at creating software solutions for the masses--which is by no means an easy task. However, one must realize that the company's image does not fit with Yahoo!'s, and that if Microsoft's image is not harmed by a Yahoo! acquisiton, Yahoo!'s certainly will be.

Perhaps that's the point. As others had point out this spring when a deal looked very likely, maybe Microsoft was toying around with Yahoo! in the hopes of destroying it and taking over a good chunk of its position in search. While I don't think this is the case, the end result might be the same. (However, it's no foregone conclusion that a world without Yahoo! would make Microsoft a lot more powerful in the search market.) While Microsoft is still entertaining the idea of a deal, perhaps Yahoo! will take its eye off the ball and fail to formulate a real long-term strategy to maintain relevant in the online space. With the distraction of Microsoft, as well as huge hits to the ad market, it will be interesting to see how Yahoo! comes out of the current economic funk. On this front I don't have any good predictions, but short of a generous purchase by Microsoft, nothing will come easily.