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May 3 2008   8:58PM GMT

Shocker: Microsoft nixes Yahoo bid

badarrow Barbara Darrow Profile: badarrow

Microsoft has abandoned its hard-fought — and expensive — bid to buy Yahoo.

A post to the company’s website Saturday includes a letter from Microsoft CEO Steve Ballmer to his counterpart at Yahoo: Jerry Yang.

For some, this is a sign of sanity. Last week Microsoft raised its offer to $33 per share from $31. But Yang, held out for more. That last bit of intransigence may have given Ballmer & Co. what they needed: A good reason to walk away.

In his letter, Ballmer said taking the battle to Yahoo shareholders would have made it hard for a combined company to retain Yahoo technologists and engineers. The Wall Street Journal online reported that just hours earlier Ballmer and platform & services division president Kevin Johnson met with Yang and Yahoo co-founder David Filo in Seattle. Yahoo dropped its price to $37 per share, but Microsoft wouldn’t budge above $33.

While Microsoft’s willingness to spend more than $45 billion on Yahoo proved, to some, the company was bound-and determined to get relevant in the ad and search business. To others it was a huge distraction that would have resulted in a huge overlap in staffing and R&D. They feared massive layoffs and period of uncertainty while the convergence was worked out. Blogger Mini Microsoft, who had railed against the deal for some time, is already celebrating.  “Hot damn and Yahoo!,” he wrote

Some Microsoft partners felt that the purchase attempt kept the company from concentrating on core efforts  that it can ill afford to screw up. (Office and Windows anyone?). They maintained the company should use its own in-house smarts to negotiate the road to software-as-a-service rather than spend $50 billion on Yahoo.

True, Yahoo would have brought some interesting stuff to the table even besides its successful portal. But how long has Microsoft been boasting about all the billions it’s been spending in R&D? Face it, many of us have been underwhelmed with the results thus far. So now would be a good time to wow the world with Microsoft’s home-grown tech, no?

In his letter to Yang, Ballmer still defended the purchase idea as the best option for both parties, “but clearly a deal is not to be.” (Update: Yahoo’s response here.)

That may very well be the best thing that’s happened to Microsoft in a long time — no disrespect to Yahoo.

The key now will be for Microsoft to focus on its own priorities — and maybe re-think whether fighting Google should remain job one.

Barbara Darrow can be reached at bdarrow@techtarget.com.

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