By Richard Koman / CIO Today. Updated May 07, 2008.
Microsoft will pursue independent paths as it figures out how to compete with Google in the aftermath of its failed bid for Yahoo. Speaking at a press conference in Tokyo, Chairman Bill Gates said Microsoft is committed to making its own advances in search and online advertising.
"We will make the advances that give people the great choice there," he said.
While not ruling out deals with other top-tier players, Gates emphasized the current plan is to build new capabilities internally. "The key decisions on (other acquisitions) will be made by Microsoft CEO Steve Ballmer, who took a look at Yahoo and decided that, on our own, he likes the stuff that we're doing," Gates said. "I wouldn't rule out some partnerships, but we don't have anything imminent there."
Deal Could Return
Despite Ballmer's decision to walk away from a Yahoo takeover and Gates' supportive comments, many analysts think Microsoft will be back later this summer if Yahoo's stock price slides to pre-offer levels.
"If Yahoo misses its forecasts and the stock takes a hit, Microsoft would definitely look to step back in," Ross Sandler, an analyst with RBC Capital Markets, told the San Franciso Chronicle.
While that may be, Gates' comments likely reflect the thinking in Redmond, said Tim Bajarin, principal analyst with Creative Strategies, in an e-mail. "I believe Microsoft learned a lot through this Yahoo bid and most likely ended up giving a great deal of thought about what they need to do to compete if the Yahoo deal did not go through," he said. "I think Gates' comments reflect this and at the moment they seem prepared to go it alone."
Even so, "you cannot rule out the potential of Microsoft at some point entertaining another Yahoo bid if their stock and market value goes down and they could get it for a reduced price," he added.
Going It Alone
The roughly $45 billion Microsoft was prepared to spend on Yahoo would go a long way toward internal research and development efforts, said Charles King, principal analyst with Pund-IT, in a telephone interview.
"What Yahoo would have given Microsoft is a much quicker ramp for its online goals," King said. "But that's a lot of money. I don't see any reason they couldn't very effectively invest that money."
In any case, it's not clear what companies other than Yahoo would make sense for Microsoft. One option frequently mentioned is a social-networking company like Facebook. "But there's no evidence Facebook has figured out the online advertising model," King noted.
At the end of the day, does Microsoft's failure to close this deal further tarnish Microsoft's reputation as the dominant computing company? And with Gates departing soon, how much nervousness is there about Ballmer steering the ship alone? "Anytime there's a changing of the guard, there's a certain amount of anxiety," King said.
"Vista was supposed to be the final polish on Gates' legacy -- the world-class operating system for the enterprise. It hasn't worked out the way the company hoped it would," King said. Ballmer is a "very bright, very able guy, he's delivered in the past and he'll continue to deliver in the future," King said, but "he's also under far closer and more intense scrutiny than he's been before."