The Microsoft - Yahoo deal looks dead, for the moment anyway. Yahoo's price of $37/share was too rich for Microsoft's blood, and the market agrees. As of this writing, Microsoft stock is inching upward and Yahoo shares are trading around $26.
Yahoo shareholders are not happy. Is the Yahoo board playing hard to get with Microsoft? If so, it's a pretty bold game of chicken. I don't see the synergy. How does Yahoo help Microsoft compete against Google for search marketing dollars? Google is already eating Yahoo's lunch, and how does Yahoo make them stronger? (Other than by being a bottomless pit of cash.)
Microsoft might want to buy Yahoo to keep them from aligning with Google. If it's a defensive play, there's risk in waiting. But why would Google buy Yahoo when it can bury them? For that matter, as Yahoo continues to lose market share and face shareholder unrest, both of which serve to lower its stock value, why would Microsoft want to buy them now?
Yahoo and Microsoft might do better to think small if they want to take on Google and win. It's going to take innovation. Who innovates better - a bureaucratic corporate behemoth or a nimble niche player? Maybe a joint venture is the way to go, separated from both corporate cultures. Who knows what will happen? All we know for sure is, this story has not yet reached the final act.
