Ballmer Boo-Hoos Yahoo

If Microsoft can't have Yahoo—assuming the software giant ever really wanted the Internet media company—no one else will, including Yahoo. Microsoft's April 5 letter to Yahoo's board is one of the nastiest pieces of FUD (fear, uncertainty and doubt) communications penned in the high-tech era. The letter is really for shareholders and seeks to divide them from Yahoo management. Microsoft will either take Yahoo or take it out—and the latter looks like the real objective.

For years, I've said that Yahoo was bigger competitor to Microsoft than Google. Yahoo benefited from Microsoft's obsession with Google. Party's over, baby. Microsoft has finally recognized that both Google and Yahoo are competitive threats and that one competitor is the way of getting at the other. Yahoo is the more vulnerable, but no means weak as Microsoft CEO Steve Ballmer's letter suggests.

Microsoft clearly wants to instill fear among Yahoo shareholders. Microsoft has a gun pointed at Yahoo's head. Ballmer's letter is a threat to the board and offer to shareholders—to take the gun and shoot the executive ranks in their collective heads. Bang. Bang. Fear is shareholders' motivation to act against their own best interests. Ballmer threatened:

"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."

All 10 Yahoo board members are up for re-election, although there is currently no firm date for the next shareholder meeting. Microsoft can go after the board or launch a nasty proxy fight. Either action could make shareholder fear real, but from Microsoft bullying rather than Yahoo management inaction. Hello, Yahoo shareholders, wake up from the spell of fear. Do you want to do Microsoft's dirty work to your own company?

Last night, while flipping through TV shows I happened upon "Download: The Real Story of the Internet" and episode "Browser Wars," which chronicled Microsoft's obsessive attack against Netscape. A decade later, Microsoft is going after Yahoo, one of the oldest and most successful dot-coms. Microsoft pursues Yahoo because killing Netscape didn't resolve the browser problem. Netscape wasn't the threat, but the Web platform supporting it.

Microsoft and Google search competition is an extension of the browser wars. The Web introduced a vast, informational network that did not require Windows for access. Search is really an extension of Microsoft's original, informational problem with the Web. Microsoft Netscape-killing ways didn't solve the problem, because they didn't kill the underlying platform.

Windows is a platform, but not unto itself. The software is really an extension of the broader PC platform. Likewise, the Web is the broader platform that Netscape hoped to create an operating system in the clouds. The problem persists in the Web 2.0 platform, where Google and Yahoo are among the most successful dot-coms. From the perspective of the Windows monopoly, all Web 2.0 companies are huge competitive threats. Microsoft will consume Yahoo or mortally wound it otherwise.

Yahoo shareholders need to understand that Microsoft's timing isn't coincidental. Yahoo's recent share decline means Microsoft can buy a highly valuable company on the cheap. But there's bigger reason: The return of Jerry Yang, Yahoo's co-founder, as CEO. Yang is in similar position as Apple Steve Jobs was in 1997. Jobs took Apple from the brink to the summit. Yang has only been back as CEO since last summer. Like Jobs, Yang has vision and, more importantly, commitment. Yahoo is Yang's baby; there is a strong emotional attachment.

Microsoft can't risk even the slightest possibility that Yahoo could revive like Apple. For starters, Yahoo is a much stronger company today than Apple was a decade ago. A resurgent Yahoo would put a huge barrier between Microsoft and Google and end any chance of ever catching the search giant.

The takeover bid is a huge distraction and destabilizing force against Yahoo. Yang and company could fail simply because of Microsoft's hostile takeover. That's the real fear here. But given a chance, Yang could succeed and turn around a ship that's taken on a little water. Microsoft might generate fear the ship is sinking, but not even close. Can Yang succeed in reviving Yahoo? Strangely, the answer lies with Microsoft and Yahoo shareholders.