Takeover Tiff Best Thing to Happen to Yahoo

Microsoft made what appeared to be its last bid for Yahoo at $33 per share, and Yahoo wanted $37. Microsoft walked away.

What a weird way for this entire drama to end — if it is indeed over. Most people expect this to be a very bad week for Yahoo on Wall Street, with Silicon Alley Insider’s Henry Blodget predicting Yahoo’s stock will “drop at least to the low 20s.”

That makes sense. But what about in the long haul? Everyone believes Yahoo will need to combine with AOL or MySpace or Facebook or someone somewhere. But what if Microsoft’s takeover attempt — especially now that it failed — has actually woken up Yahoo after years of slumber at the wheel of the top-trafficked web network? What if this was the best thing that could have happened to it?

Almost no one has faith that Yahoo with its current leadership in the current competitive landscape (with Google crushing all comers) can actually turn itself around on its own. And why not? Yes, it has squandered its brand, reputation and huge popularity by moving too slow or awkwardly in social networking and video, and not integrating its new purchases such as Flickr and del.icio.us very well.

But Yahoo at least has done some soul searching and found the courage to stand up to Microsoft and CEO Steve Ballmer, and start shaking off the cobwebs and fight. There are a few signs, albeit not revolutionary ones, that the company can chart a new course that gives it some momentum:

> The move to outsource some of its search ads to Google shows that it can work with rivals in a time of distress. Remember that Microsoft threw a lifeline to Apple Computer, helping by investing in the company when it was in the doldrums in 1997.

> The same is true about Yahoo talking to others such as AOL and News Corp. Even if they didn’t — or don’t — make a deal with them, at least Yahoo is out exploring the marketplace. These talks might lead to better alliances or other cooperative deals outside of mergers.

> Yahoo has finally embraced a more open strategy to its platforms. At the recent Web 2.0 conference, Yahoo CTO Ari Balogh said that “Yahoo Open Strategy” would mean outside developers could play more in Yahoo’s sandbox, and Yahoo planned to unify all the profiles for users of all its various properties.

> Yahoo has improved its mobile offering, adding voice search to its OneSearch 2.0 features. While Yahoo has made inroads in mobile content with 29 deals with cell carriers, it could still be undermined by Google’s Android operating system for cell phones.

> Yahoo didn’t buy Facebook for a gazillion dollars. While the Yahoo considered the purchase a year or two ago, and most people slammed them for not pulling the trigger, the current trouble News Corp. is facing with MySpace could have happened with Facebook in Yahoo’s hands. Spend a ton of money and then see a tiny stream of revenues.

> Yahoo launched new labs in India and Israel. Not a bad move if you want to harness the intelligence of programmers and researchers in tech-savvy places abroad.

> Yahoo finally apologized for its terrible behavior overseas in helping Chinese authorities identify dissidents and eventually jail them. This has been a longstanding problem that Yahoo stonewalled on and wouldn’t even discuss for years.

OK, these are not huge, earth-shattering moves. But is that really what’s necessary to turn the tanker around? Can’t the company just decide to focus like a laser on mobile, aggregation, social media and new forms of advertising and succeed there? Then, perhaps, build on that and consider what they might add through mergers or buyouts that fits the focused strategy.

It’s interesting to take a gander at Yahoo’s Press Room to see what it trumpets as “Our Purpose”:

Powering communities to create indispensible experiences, built on trust.

If the company can just deliver on two of those promises — building communities and trust — it will be halfway home.

What do you think? Did Yahoo make a mistake by pushing Microsoft away? Do you think it can turn itself around or should it merge with another company? Share your thoughts in the comments below.