Here’s a theory about the whole Microhoogle thing, courtesy of Miguel Helft in today’s New York Times, that lays the blame for the deal’s collapse squarely on Google’s front lawn. The backstory: Google’s phenomenal rise caused Microsoft, the dominant technology company for more than two decades, to court Yahoo, he wrote. And Google’s success also weakened Yahoo enough to give Microsoft the sense that it could buy the company at a good price.
“But Google played a part in killing the deal, for now at least, by acting more as friend than foe,” Helft wrote. “It offered to let Yahoo use its more sophisticated search advertising technology, which by some estimates would have meant $1 billion in additional cash flow a year for Yahoo. The partnership would also bring Google more revenue… The prospect of such a partnership emboldened Yahoo’s board to demand more money for the company and eventually caused Microsoft to rethink its strategy.”
This would explain Ballmer’s cryptic comment in his letter backing away from the deal, when he said that if Microsoft went ahead with a hostile takeover attempt, Yahoo would “take steps [in the interim] that would make Yahoo! undesirable as an acquisition for Microsoft.”
So Yahoo figured that they’ve already got something interesting in the can to bring in an extra $1 billion in revenue, so they felt confident they could jack up the price for their company. And that agreement would likely dissolve in the face of Microsoft’s takeover, leaving Microsoft the prospect of then overpaying for Yahoo.