Google Wins as Microsoft Spurns Yahoo Again

The difference between a Microsoft deal at $33 a share and Yahoo's current price only cost shareholders around $15 billion. It looks like they don't call Jerry Yang the Chief Yahoo for nothing.

Yahoo's trying to spin its ad pact with Google (GOOG) as a great victory. Never mind that investors and analysts had been clamoring for such an agreement long before Microsoft made its bear-hug of a bid back in February, or that such a deal probably would have prevented this soap opera in the first place. If it's a great victory for any party, that party is Google.

Microsoft can't be happy about the Yahoo-Google hookup, but it can't possibly be surprised. The pact further confounds its ambitions in the search business, making it a distant third that's falling even farther behind. But we never did like the idea of Microsoft buying Yahoo. It seemed like a disaster in the making.

In the shorter term, Microsoft is better off as it enjoys the tsunami of cash created by its latest editions of Windows, Office and server software. Longer term it still faces the very grave strategic problem that applications and data are moving off the desktop and into the Cloud. The Yahoo gambit was a stab at solving that problem. It didn't work out. But Microsoft is nothing if not relentless. To its way of thinking the aborted Yahoo deal just means it's got a free $50 billion to deploy elsewhere in that quest.

Checking the scorecard at this junction it looks like Jerry Yang won, albeit a Pyrrhic victory. He kept his beloved company out of dreaded Microsoft's clutches, but at what price? Shareholders, led by Carl Icahn, can't be too pleased.

As for Microsoft, the outcome is probably a wash. Its shareholders are certainly better off, at least for now. Although the company forced Yahoo into Google's arms, it averted a merger that would likely have ended in catastrophe. Oh, well. Back to the drawing board with its piles of cash.

Google, it almost goes without saying, looks like the big winner in all this. We kind of figured that would happen, though not quite this way. But then this story ain't over yet. With regulatory hurdles, a looming proxy fight and Microsoft hell-bent on claiming its place in the online sun, this corporate melodrama has plenty of acts to go.

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