So the first round skirmish is over. Microsoft has dropped its three-month-old bid to buy Yahoo! because the two sides cannot agree on an acceptable sale price. Microsoft chief executive Steve Ballmer has formally withdrawn the offer in a letter to Yahoo chief executive Jerry Yang.
From the day the original offer was made, I have made my reservations about this deal known. I blogged then:
"I really do not see how this deal will work. If it goes through (and that is a big if), I cannot quite work out how the two business models map."
Nothing I have heard in the three months since then has really altered my view.
For Microsoft, the withdrawn offer allows it to focus once more on its 'Software and a Service' strategy. I really do believe this offers Microsoft its best route to engage with 'The Cloud'. The upcoming Office 14 and other core Microsoft platforms and apps provide the company with the resource to pursue this route robustly. It is time Microsoft focused on its strengths and not its perceived weaknesses.
For Yahoo!, I see troubled times ahead. It's stock price will plunge near term and it had better deliver on its forecasts. A failure to do so will see it punished by the market. I see a rash of joint venture style announcements as it seeks to retain a modicum of independence.
I opened this posting with the words, 'So the first round skirmish is over'. If Yahoo! does fail to deliver, then I expect Microsoft to pay a return visit. By that point, Yahoo's shareholders might look upon any subsequent offer through a different set of perspectives. This particular engagement still has time to run.
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