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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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November 5, 2008 9:08 AM

Will Microsoft jump in as Google scraps ad partnership with Yahoo?

Posted by Benjamin J. Romano

At 7 a.m. today, Google announced on its official blog that it was scrapping its partnership with Yahoo on search advertising:

"[A]fter four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement."

The Justice Department's position came clear in this Associated Press story on the news.

"The arrangement likely would have denied consumers the benefits of competition — lower prices, better service and greater innovation," said Thomas Barnett, an assistant attorney general who oversees the Justice Department's antitrust division.

The next question is whether Microsoft is planning to jump back in the fray, perhaps with another offer for a search partnership.

A few recent comments on that topic worth revisiting:

Carl Icahn, the Yahoo board member who advocated for a sale to Microsoft earlier this year, restated his opinion that Yahoo should do a search deal with Microsoft. From an interview he gave to CNBC on Monday:

"I believe that eventually Yahoo! should make a deal with Microsoft. Not to buy the company anymore but for search. We could save a fortune at Yahoo! if Microsoft would do the search for us."

In mid-October, Microsoft CEO Steve Ballmer gave his current thinking on Yahoo. He was asked by Gartner analysts if the Yahoo acquisition made sense 8 months ago, "why wouldn't it even make more sense now, now that the price would presumably be a lot lower?"

Ballmer: "Well I don't know if the price would be lower. We offered 33 bucks not too long ago and it's 11 and a half today, so I don't know what price might have gotten the job done. It's clear that the Yahoo --- that Yahoo did not want to sell the company. It didn't want to sell when we offered $33. If they thought the company was worth more than $33 six months ago, they probably still think it's worth at least $33 today and so, I think what we learned through that is look, they want to remain independent. Perhaps there will continue to be opportunities to partner around search. We're not in any discussions with them, but that was an offer we made after the acquisition had fallen through. We'll see. I still think it would make sense economically for their shareholders and ours." (Emphasis added.)

The quote sent a little spark through the tech/finance chattering classes, who mostly misinterpreted early, partial quotes from Ballmer's answer to mean he thought an acquisition still made sense economically. Microsoft corporate PR doused the thought of an acquisition quickly, but the statement issued back made no mention of a search partnership: "Microsoft has no interest in acquiring Yahoo!; there are no discussions between the companies."

I've asked for Microsoft's reaction to today's news. I'll update this post once I learn it.

Update, 10:53 a.m.: Microsoft did not address the question of whether it remains interested in a search partnership with Yahoo. The company did issue a statement, attributed to Brad Smith, general counsel:

"The Department of Justice's finding is significant for advertisers, publishers and consumers, who voiced overwhelming concern about this illegal deal to law enforcement and policymakers."

Meanwhile, anonymous (but trusted) Microsoft and Yahoo sources are furiously quashing rumors of the pending departure of Jerry Yang and late-stage acquisition talks between Yahoo and Microsoft. However, this does appear to be "complete baloney," as VentureBeat, which first reported the rumor, put it.


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