Both Yahoo and Microsoft have said before that merger talks were dead, but it always seemed possible that they were just posturing, hoping for better terms. And, while that's still theoretically possible, industry observers seem to be interpreting today's announcements as final.
In this last round of talks, Microsoft made an offer just for Yahoo's search business. Yahoo, which has never expressed all that much interest in selling itself to Microsoft, said today that selling search made no strategic sense. "Yahoo's board of directors has determined, after careful evaluation, that such a transaction would not be consistent with the company's view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo stockholders," the company said in a statement.
That statement, indicating that Yahoo intends to keep control of its search business, seems directed at regulators at least as much stockholders. Microsoft has indicated it will do its best to scuttle a Yahoo-Google search deal on antitrust grounds. But arguments that the deal violates antitrust law become much weaker if Yahoo can convince people that it has no intention of selling the entire search business to Google.
In any case, should a Google-Yahoo search deal go through, there's almost no chance that Microsoft will revive talks with Yahoo, because the main reason Microsoft wanted Yahoo was to compete with Google.