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Microsoft Benefits From Inaction

Say what you want about Microsoft's online efforts, SAI's Henry Blodget says the software giant has been the hands-down winner of the latest round of the Web Wars. The company's recent success has had less to do with any brilliant actions on its part; rather, Microsoft has simply stood aside and watched as Google's Yahoo deal and Yahoo's proposed AOL merger go nowhere.

As Blodget points out, sometimes doing nothing is the smartest move. Ten months ago, Microsoft was prepared to offer $50 billion in stock and cash for Yahoo. Now, Yahoo's tanking share price underscores the wisdom of Ballmer's decision to eventually walk away from negotiations (of course, this was after Yahoo rejected Microsoft's first two offers). Blodget says the deal would have "diluted the hell out of Microsoft shareholders" and been "a disaster" for all and sundry. Since then, Yahoo's market cap has fallen below $18 billion.

Of course, Microsoft was really after Yahoo Search, which has long since lost the search wars to Google. Yahoo, the Web's No. 2 search provider, lacks the resources to effectively compete with No. 1 Google, and has decided instead to partner with the search king. However, since the Justice Department looks unlikely to allow such a partnership, a sale of the division to Microsoft may yet be Yahoo's only option. With display revenues tanking and a Google-Yahoo partnership unlikely, Microsoft would do well to sit back and watch Yahoo try and take over AOL, Blodget says, and then scoop in to "buy the wreckage for $15-$20 per share."

Read the whole story at Silicon Alley Insider »

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