The dust is settling after the withdrawn purchase offer of Yahoo Inc. (NASDAQ: YHOO) by Microsoft Corporation (NASDAQ: MSFT). During that fascinating process, speculation ran high as to why Steve Ballmer chose the strategy that he did. People were asking what the probable outcomes could be and what would possibly be created by the acquisition. What I have found to be lacking in the realm of the public keyboard is a synopsis of what exactly Steve Ballmer has accomplished through this seemingly fruitless process.

I was convinced that Microsoft (NASDAQ: MSFT) would go hostile on Yahoo! (NASDAQ: YHOO). Microsoft is known as a tough player, right? And Yahoo seems to be a good strategic fit.

But of course, Microsoft's CEO, Steve Ballmer, has thrown in the towel on the $31 buyout offer. Apparently, he lobbed $33 per share – but the folks at Yahoo wanted $4 extra.

I can certainly understand why Ballmer doesn't want to overpay. After all, many M&A studies show that this is often deadly for dealmaking.

At the same time, Microsoft had the option of a proxy fight and a direct offer to Yahoo shareholders. However, Ballmer thought such things would be too distracting. But doesn't Microsoft have legions of attorneys and investment bankers?

Once again investors get left holding the bag.

Microsoft (NASDAQ: MSFT) shareholders should breathe a sigh of relief for not overpaying for an internet search company, Yahoo (NASDAQ: YHOO) where CEO Jerry Yang let his ego get in the way of handsome profits. Yang rejected the $47.5 billion offer that Microsoft put on the table. Why? Because he thought the company is worth more than $50 billion. As reported by the AP: "Clearly there's frustration," said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. "I am not even sure if Yahoo cares about its shareholders because they didn't show much regard for shareholders' best interests in this process."

Yang actually thinks that a more sophisticated advertising platform is the secret sauce needed to produce a spike in revenue growth. Keep in mind that revenue grew by only 12% last year, and there is no indication that that number is going to be much higher in '08. Yang thinks that he will be able to grow revenue's by 25 percent in 2009 and 2010. Uh Huh!

I think that today's selloff in Yahoo stock will be an indication of what the public thinks of Yang's plan.

Could it be that in the long run he will be proved correct? I doubt it but only time will tell.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 5/5/08.

The New York Times reports that Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer may raise his bid for Yahoo Inc. (NASDAQ: YHOO) to $32.

That number may not be enough. Currently, Yahoo is valued at $29.06 a share but Microsoft is considering an offer in the $32 or $33 range. However, that's short of the $35 to $37 range that Yahoo shareholders want for their holdings.

Yahoo continues to hold out hope for remaining independent, including a combination with the BloggingStocks parent, AOL, a unit of Time Warner (NYSE: TWX) and a search advertising partnership with Google (NASDAQ: GOOG). And so the drama continues.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Discretion is the better part of valor -- that's what I was always taught. Perhaps the time for a strategic withdrawal has come in the battle of Microsoft Corp. (NASDAQ: MSFT) vs Yahoo Inc. (NASDAQ: YHOO). Somehow, though, I can't imagine it will take that turn, as I read the analysts, strategists and pundits. How could it have become so adversarial? Surely something ugly may be at hand.

Did Steve Ballmer envision this type of scenario when launching his original bid for Yahoo? Did he ever imagine the attempted synergy would become a battle of wills as much as money? To what degree does pride factor into this pending recipe for disaster? I dare say that is what it has all come down to now. Pride goes before a fall, they say.

Does Steve Ballmer have the grace within him to fold his tents and quietly withdraw? Or shall his siege works be lain against the walls of Yahoo in an attempt to forcibly take it? Already he has warned that he will appeal to the sensibilities of Yahoo's investor rank and file. It's a tactic which has been used in many a war. However, attempting to romance the populace away from their leaders seldom, if ever, has worked. In the meantime, Microsoft's own shares are on the decline, diluting the strength of its acceptable offer.

I submit to you that at this time Microsoft should disengage from the situation entirely. Giving Yahoo some time to fully digest the reality of what it is facing might be a worthwhile strategy. To force the matter any further right now may only lead to the degradation of the reputations of both companies. That is something that no one desires.

The powerful silence emanating from an adversary which has quietly withdrawn places nothing but unanswerable questions on the horizon.

Gary Sattler is a freelance blogger. He does not knowingly have interest in the companies mentioned in this blog post.

Shares of Microsoft (NASDAQ: MSFT) fell in after-hours trading after the world's largest software maker failed to wow investors.

Net income at the Redmond, Wash., company fell to $4.39 billion, or 47 cents a share, on flat revenue of $14.5 billion. Analysts had expected profit of 44 cents on revenue of $14.5 billion. Revenue at Microsoft's Business Division, Client and Server and Tools businesses, the company's largest, fell during the quarter. The others, including the Entertainment and Devices unit, rose.

Pacific Crest analyst Brendan Barnicle told Bloomberg News that "people were expecting more of a blowout. It's a decent quarter. It's not a great quarter by any means, and people were expecting a great quarter.''

Bloomberg News reports that Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer said he did not think it made sense for it to buy Google Inc. (NASDAQ: GOOG). Ballmer cited the high price as well as regulatory and antitrust concerns. Meanwhile, Ballmer said he had no plans to raise his $31 a share cash and stock bid for Yahoo (NASDAQ: YHOO).

But if Ballmer is really interested in advertising, he would get a much more powerful player in Google. After all, Yahoo, which has four more days to consider Microsoft's offer, saw its sales climb a modest 14% last quarter, while Google sales spiked 46%. And the stock market gave Yahoo a Bronx cheer -- slicing 2% off its value this morning on yesterday's earnings announcement -- compared to a 20% surge in Google's market capitalization on its announcement.

Could Microsoft afford to buy Google? Yes. Google's current market capitalization of $174 billion is $111 billion less than Microsoft's $285 billion. If Microsoft offered to swap stock with Google at a 20% premium -- a $209 billion deal -- Microsoft would end up paying 73% of its shares to own Google. And in so doing, it would create a company with $68 billion in revenues and $18.2 billion in profit.

Jerry Yang may have just figured out a way to not hose Yahoo! (NASDAQ: YHOO) shareholders. The Wall Street Journal is reporting that Yahoo! and Time Warner Inc.'s (NYSE: TWX) AOL may be close to a tie-up to combine their Internet operations. According to the report, Time Warner would make a large cash investment into Yahoo! and then Yahoo! would repurchase billions of dollars worth of shares in the mid-$30's. Just keep in mind that as of now, this all only an unverified WSJ story; nothing has been released by the companies.

This would thwart Microsoft Corp. (NASDAQ: MSFT) in a deal valuation, or at least that would be the intent. Interestingly enough, there were headlines today tying Yahoo! into running some test search-ads via Google (NASDAQ: GOOG). As long as we're talking about your cousin's sister's brother, Google also owns a 5% chuck of AOL via a prior $1 billion investment. In order to monetize the deal, AOL would have to have a liquidity event of some sort, although by now the time may have passed.

There are no assurances that shareholders would go along with an AOL/Yahoo! combination, nor are there assurances that this would net more money to Yahoo! shareholders in the end. Time Warner shareholders might even potentially be an issue. Until there are more facts out other than the Journal's un-named sources, it's just all hearsay anyway.

Frankly, it's a wonder that Bill Gates hasn't tried to get involved in this deal with his own money. He could always say he's too young to go do charity.

Will Time Warner Inc. (NYSE: TWX) beat Microsoft Corp. (NASDAQ: MSFT) for Yahoo Inc. (NASDAQ: YHOO)?

According to the Wall Street Journal, talks between the two companies have "heated up recently." Maybe the discussions have obtained a heightened sense of urgency now that Microsoft CEO Steve Ballmer has threatened to make his company's unsolicited bid for Yahoo hostile. Ballmer has given Yahoo until April 26 to respond to the offer. No doubt that deadline will not be the last line in the sand to be drawn.

I still give Microsoft the edge in this contest. The software maker wants Yahoo in the worst way, offering $44.6 billion, or $31 per share, for the beleaguered Internet portal. Time Warner also is under pressure from shareholders to turn around AOL. But unlike Microsoft, it doesn't feel the force of Google Inc. (NASDAQ: GOOG) breathing down its neck. I would be surprised if Time Warner would match Microsoft's offer for Yahoo.

I also sincerely doubt that Time Warner shareholders would jump for joy if this deal were to happen. While merging Yahoo and Time Warner's AOL makes sense on some level, it would do little to boost the media conglomerate's share price unless it was accompanied by a spin-off. The headaches such a deal would create would be enormous. Merging MSN and Yahoo would be no picnic either.

Even in a Microsoft/Yahoo deal, MSN would likely cease to exist. Advertisers would never tolerate the duplication of content if Microsoft were to buy Yahoo. Shareholders, who argue that Microsoft is wasting its time chasing Google, wouldn't tolerate it either. Massive layoffs at MSN would result to keep shareholders off Microsoft's back.

Ballmer needs to remember the ancient proverb of being careful what he wishes for because he might get it.

Freelance writer Jonathan Berr edits the blog Ketchup and Eggs.

For years Microsoft (NASDAQ: MSFT) has taken the approach that it is best to fill senior management jobs from within the company. While this may have worked in areas like running the operations for Windows OS, server software, and Office, it has not worked in the device and internet businesses. Microsoft's software divisions can be run by engineers, but other areas of the company probably cannot.

To fix this, CEO Steve Ballmer is turning outside the company for management.

Brian McAndrews, who now runs Microsoft's online ad business, has insisted that certain engineering groups report to him, according to The Wall Street Journal. The company also brought in its chief operating officer, Kevin Turner, from Wal-Mart (NYSE: WMT) and Don Mattrick, who runs video games, from Electronic Arts (NASDAQ: ERTS).

Why the change of heart? Microsoft has done poorly in several of its divisions, and its online and devices operations lose hundreds of million of dollars each year. While the Xbox has moved ahead of Sony's (NYSE: SNE) PS3, it still trails the Nintendo Wii. Microsoft's MSN and Live online operations have failed to gain ground on Yahoo! (NASDAQ: YHOO) and Google (NASDAQ: GOOG).

It could be argued that Microsoft should never have gotten into businesses so far afield from building PC and server software. Investors probably would have been better off if the company had not been saddled with losses from these new divisions.

But, if Ballmer insists on going down the road of diversification, he might as well do it right.

Douglas A. McIntyre is a partner at 24/7 Wall St.

The Wall Street Journal [subscription required] reports that Microsoft Corp. (NASDAQ: MSFT), hoping to bolster its legal challenge, is now paying a PR firm to drum up public opposition to Google Inc.'s (NASDAQ: GOOG) $3.1 billion deal to acquire online advertising firm, DoubleClick. Microsoft hired PR firm Burson-Marsteller to drum up opposition to Google's DoubleClick deal. In Europe, Burson urged Internet companies to sign an online petition for a more "transparent and competitive Internet," according to the pitches.

Why does Microsoft oppose the deal and why is it hiding behind Burson? Microsoft does not want Google to strengthen its competitive position in the online advertising industry -- and DoubleClick, which serves online display advertisements, would surely help Google expand its online advertising dominance. Microsoft has been hiding behind Burson in Europe because it has just lost a European Court upheld a ruling that found Microsoft had abused its near-monopoly position in PC computer software.

The irony of Microsoft's efforts to block competition through the courts and the media was not lost on the Journal. In the 1990s, Bill Gates enjoyed tweaking competitors which similar tactics by rivals as it cemented its own power in personal-computer software, and those efforts factored into its run-ins with antitrust regulators.

But current Microsoft CEO Steve Ballmer lacks Gates' competitive chops, so he's struggling to use the means of a second rate competitor against the market leader, Google. Those clumsy means will only make Microsoft look bad.

Peter Cohan is president of Peter S. Cohan & Associates,. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Google or Microsoft securities.

When Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer speaks, dissecting his words can sometimes take a while. The brash but successful CEO sometimes says things that demonstrate arrogance or a misunderstanding of certain markets, but generally he's right on target. Ballmer recently stated that Microsoft's mantra is "staying ahead" in the constantly changing disruptions in the software business.

Now, the "software business" can be defined differently than it was even six years ago. Companies like salesforce.com, inc. (NYSE: CRM) and Google Inc. (NASDAQ: GOOG) have taken software applications out of computers and put them on the web. All that is needed is an Internet connection and a web browser -- no software updates or service packs needed -- ever. Is that what Ballmer is talking about? Perhaps. The handpicked successor to Bill Gates -- Ray Ozzie -- will have a plate higher than almost anyone in the world soon (like, now) as Microsoft tries to catch up in the world where "software" is increasingly being deployed via the Internet.

Do IT departments embrace change? Ballmer doesn't think so, as he sees them building non-disruptive competencies around what business needs are (and will be). If this enough? In a world full of change, this can be a disaster waiting to happen. With Microsoft spending around $6 billion per fiscal year in the R&D field, what can the software giant do to unplug that kind of thinking? Ballmer says that, "there is a view that innovation happens overnight and that's simply not the case. It took us eight to 10 years to get Windows popular, and many years to get databases popular." This is true -- but it's a different world now where CDs aren't used for software distribution and database development happens way, way outside the customer facility. Innovation happening overnight? That is the new ballgame, Steve.

Microsoft Corp. (NASDAQ: MSFT) is paying an 85% premium to buy online advertising firm aQuantive Inc. (NASDAQ: AQNT). Yes, that's 85%. It is the price for being late to the dance.

After missing out on both DoubleClick and 24/7 Real Media (NASDAQ: TFSM), Microsoft had few options left if it wanted a presence in the internet advertising brokerage business -- the intersection where markets buy ads and place them on websites. The companies in this business have huge amounts of data on internet use patterns.

So, Microsoft will pay about $6 billion for a company that had $143 million in revenue last quarter and an operating profit of $20 million. Doesn't Steve Ballmer keeps saying he won't over pay for anything? Before the DoubleClick deal with Google Inc. (NASDAQ: GOOG), aQuantive sold below $30, so the real premium can actually be viewed as well over 100%.

Being so late, and paying so much is a huge strategic blunder, but it is the price for waiting

Douglas A. McIntyre is a partner at 24/7 Wall St.

The on-again off-again merger talks between Microsoft Corp. (NASDAQ: MSFT) and Yahoo Inc. (NASDAQ: YHOO) are off again, according to The Wall Street Journal.

It isn't clear when the talks, which were first reported by the New York Post, restarted and when they stopped. Still, Microsoft and Yahoo! may join forces on some level. "The two companies may still explore other ways of cooperating," the Journal said. indicating that the two companies understand that they need one another.

Microsoft is betting that its adCenter platform will help it gain traction against Google Inc. (NASDAQ: GOOG). Yahoo! expects big things from Project Panama. Separately, they don't stand much of a chance taking marketshare from the search engine giant. Together, they stand a chance.

Microsoft CEO Steve Ballmer and his counterpart at Yahoo!, Terry Semel, know this very well. Combining the two companies makes sense on many levels.

So why hasn't this happened yet? Do the companies think that joining forces will be an admission that their strategies have failed? Also, even a huge company such as a combined Microsoft-Yahoo! isn't big enough for Ballmer and Semel.

They can't continue on the road that they have traveled. Some change in direction is needed. It's a question of what and when.

Microsoft Corporation (NASDAQ: MSFT) is seeing the benefit of its new product launches, as one would expect. Its massive installed base and new product launches are allowing it to increase its contract prices to customers.

Revenue growth was up 17% for the March quarter, operating income beat estimates by 3 to 4 cents and free cash flow was $7 billion, a typically amazing number for the software giant. The company repurchased $6.7 billion in stock and continues to pay dividends.

Guidance is also solid for 2008, expecting 11% revenue growth or a $5.0 billion revenue increase, which exceeds the total annual revenue for most publicly traded companies, as management mentioned.

Microsoft's stock tends to do best when revenue growth is accelerating, which is currently the case. Also, Microsoft is really low-balling guidance so it should be able to easily beat analyst estimates.

The stock has had a big move, so it is hard to get overly excited about it, I'd wait for market pull-back before jumping in.