Bill Gates Has Spoken – Goodbye Yahoo – But What Now?

Implications: Good for Bill Gates.  Yahoo was getting way too big for its britches.  Growing a business organically is a good idea only if you have time.

Analysis: Yahoo had a solid offer from Microsoft and it didn’t take it.  This is called greedy.  Let us not forget before Microsoft ever announced its intent to obtain Yahoo, most people viewed Yahoo as a distant Number Two to Google.  Yahoo over estimated its strategic value to Microsoft and lost.

However, Gates and Microsoft have a challenge on their hands because growing a business organically is not easy even with assets like Facebook in your competitive arsenal.

I agree that Microsoft’s intense negotiations with Yahoo were clearly a sign of its concern but I would not read too much into it.  Microsoft has never struck as a company that did anything gently.

A joint venture with AOL and News Corp is a possibility.  I am not quite sure how 3 companies with intense personalities will fare but you never know.  Despite my misgivings about the entire Yahoo deal, I have even more misgivings with Microsoft’s ability to home grow an Internet initiative without some starter capital and intellectual property; i.e., a strategic acquisition with assets that can help Microsoft’s initiative.

The problem Microsoft is facing as all telecom/infocom companies are facing is the need to enter a market place quickly and demonstrate positive results quickly.  I call the problem Wall Street.  I agree with Microsoft’s decision to pull out of the Yahoo deal.  You cannot turn a bad deal into a good deal.  If Microsoft overpaid for Yahoo, there would have been no way the company could have justified the purchase; I don’t care how many accounting tricks you pulled.  But I am concerned that Microsoft’s strategy may be very dependent on a joint venture with other companies.

I am a believer in joint ventures but only when all of the parties have goals that are aligned and in sync with one another.  We need to keep in mind that a joint venture is a way of very different companies to work together without necessarily giving up their individual identities or revenue streams.  A joint venture is an opportunity to create alternative revenue streams for companies.

Organic growth takes time.  If the Street is willing to give Microsoft time, then the organic approach may work.

Microsoft needs to work quickly.