Banking

Microsoft shows the importance of not wavering in negotiations

Sometimes you can win by losing. Microsoft walked away from Yahoo, but at the same time probably 'won' by not upping its bid. It seems like the best way to win a negotiation is to do exactly what Microsoft did - draw a line in the sand and don't cross it.

Over the weekend, Microsoft walked away from its takeover attempt of Yahoo. Lots of punditry has gone on since then as to whether it was a good idea or a bad idea. What's more interesting is strength of Microsoft's resolve in the decision making process.

Clearly we can't mind-read when it comes to Steve Ballmer's decision to walk away from the purchase, or Jerry Yang's decision not to sell in the first place, but we can make some inferences. It seems to have come down to the punchline of the old joke "We've established what you are, now we're just haggling on price."

Yahoo initially resisted Microsoft's bid because it said that it wanted to remain independent, but over time, you could see they were just holding out for a better price. The major shareholders were ready to sell if Microsoft would fork over another $1 per share. Steve Ballmer wasn't ready to do that, and as a result, now Yahoo's stock price is now closing in to where it was before the merger talks took place.

Drawing a line in the sand

The hardest part in any decision making process is sticking by the decision that's been made. Microsoft set a share price, adjusted it once, and then wasn't going to go any further. Yahoo gambled that Microsoft would up its bid. Microsoft didn't. If Yahoo stumbles and Microsoft decides to make another run at Yahoo in a quarter or two, you know the price is going to be lower. Then, Yang won't be able to say No.

Too often what companies, managers, and individuals do is to waver on their bottom lines. Negotiations come down to a big game of chicken, where you see who will cave in first. Anyone who's bought a car knows the pain of the negotiating process and the joy that it takes out of the whole process when you consider later whether you really got a good deal or whether you were robbed.

The key to most of these decisions is to do what Microsoft did right here. Draw a line in the sand, stick to it, and be prepared to live with the consequences. Microsoft decided that Yahoo wasn't worth another penny at this point, and would prefer to crush Yahoo on its own or partner with someone else like AOL.

You might not always win a negotiation by walking away, but at least you don't wind up feeling like a sucker when it's all said and done. In the long run too, when people realize that you're not one who will negotiate past what you consider is fair, you'll get more respect and better deals.

22 comments
Ethical_Loner
Ethical_Loner

Definitely backwards. Yahoo did the right thing here by refusing to be bullied by Balmer and M$ into taking less than the company is worth. You can bet M$ did its homework and Balmer, looking every bit the vulture he is, figured he could make a steal deal and come out looking good. My view is that M$ now looks worse than ever. They have taken on the look and feel of a gluttonous monster that rears its ugly head from time to time to see what targets it can either acquire or destroy in its bid for world dominance (software wise of course). (software Nazi's, anyone?) The culture of this company is (and has been) going down the tubes. I've lost a TON of respect for M$ on this one.

sfinnegan
sfinnegan

One of the keys to successful negotiation is deciding when to walk away before it begins. Microsoft demonstrated a well planned, disciplined negotiation that is apparently paying off.

bilind101
bilind101

Yes they did, it clearly showed who is the boss.

John Sheesley - TechRepublic Pro
John Sheesley - TechRepublic Pro

In Decision Central, I commented that I thought Microsoft did the right thing by dropping their bid for Yahoo: http://blogs.techrepublic.com.com/decisioncentral/?p=109 I think sometimes the best stance you can take in a negotiation is to sometimes just stop negotiating altogether. Whether you have the upper hand in a negotiation or not, I think drawing a line in the sand and not crossing winds up being to your benefit in the long run. Did Microsoft do the right thing? Or what IS the best way to handle a negotiation?

John Sheesley - TechRepublic Pro
John Sheesley - TechRepublic Pro

Dunno... seems to me the market has determined that Yahoo's only worth in the twenties, not the thirties that Microsoft offered. Yahoo only seems to be worth closer to $40 in Yang's mind. Microsoft had to offer $30's as an incentive to investors, but other than that, as it stands, Yahoo seems to be not worth more than the $20's.

Shepps
Shepps

Is it paying off?

rob_annable
rob_annable

it will be interesting to see what happens next. good point about developing search engine though it is surprising about that. Perhaps when MS release Windows 7 and actually get an OS right they should focus on acquisitions...?

mothershelper
mothershelper

I think Microsoft did exactly the right thing. Not only from a business perspective, but across the board. The attention to their attempt to acquire Yahoo drove the price of Yahoo shares up. When Microsoft backed out, the price dropped. Not only that, it got everybody's imaginations working just what Microsoft could do with, or screw up, all that is Yahoo. Personally, I think Yahoo is ultimately going to need the 'Microsoft touch' to stay competitive; in comparison to google and others they're oversized, outdated, and awkward. Only time will tell if it pays off or not. It's possible Microsoft will not even bother to try again.

jdp157505
jdp157505

Microsoft can afford to wait alittle longer and watch how Yahoo stocks move If they stay this low or go lower,then they can offer a lower bid and see how desprate Yahoo is or they can use the money to make their other Internet assets stronger

skicat
skicat

For the record, I am not a fan of this acquisition. I have worked in the finance area and there are two reasons to merge companies. First, eliminate competition. Second, fill in a gap. Microsoft may be looking at eliminating the compeition but the ramifications between the corporate culture will hurt both companies for the next 10+ years. Yahoo is open source and casual (a bit to their fault) where MS is very corporate. Unless MS is looking to disolve Yahoo, Yahoo will probably struggle under the MS umbrella. Now, if MS is still serious about this merger by pulling away Steve Ballmer has put a lot of pressure on Jerry Yang. Yang must prove to the shareholders Yahoo is worth $37 per share. I believe Balmer is biding his time and waiting until Yahoo is less than $20 per share and he will offer a bid consdierably less than the $33 that Yang balked on. Think about the savings!!!

svasani
svasani

This was a wise and strong decision by Microsoft. Yahoo in spite of being however good it is, wasn't worth a penny more than what Microsoft was willing to offer. Microsoft did everything right here--Appraised Yahoo's value, drew a line, stuck with it and backed out without feeling like a sucker.

chaz15
chaz15

Absolutely the right way to negotiate!

swheeler
swheeler

When I was a yahoo user it was more than my search site. It hosted my email, I had a customized home page, and I played their games. My home page was where I started each internet session. I had all the information I wanted right up front. That kind of user experience is what we're headed towards. (Granted, my perspective comes from dated experience. I quit all online email a few years ago.)

Mr L
Mr L

Microsoft avoids shelling out massive dollars for a search/portal-driven company that can't beat Google, Yahoo avoids bring Borg'd and looks to gain a revenue stream via a partnership with Google, and Google strengthens their position relative to both MS and Yahoo. Looks like everyone got what they wanted, except maybe Balmer.

slony
slony

MS has some of the best software people in the world and they can't develope a search engine to give Yahoo a run for it's money? If I was Bill I would have people working working making Yahoo obsolete, you have to pay them anyway and it could change the game completely. Just like selling pour quality and unfinished OS's did for him.

Ethical_Loner
Ethical_Loner

Personally I don't like Yahoo one bit. However, when I speak of 'worth' I do not necessarily refer to the market and what the godless money changers view as worth. More succinctly I refer to the value to the creator of such a project. Perhaps to Yang it wasn't 'worth' giving it all up to M$. Perhaps he has yet to take Yahoo to the heights he dreamed of when he began. Nah! Too altruistic. I bow to the dollar, not in supplication but in resignation.

owner
owner

As the article stated...if they go after Yahoo again in a quarter or 2, they will be able to offer a lower price and Yahoo will end up having to cave in, especially if Yang's new policies don't bear fruit. While MS does progress through aquisition, it excels at it and take those products it aquires and integrates and improves them. That is what made MS the powerhouse it is. I do wish Bill would come back as CEO/CTO. Bill Gates is a visionary and one of the few people who can claim to have achieved most of his vision in regards to the computer industry. I think he does have more insight and forethought than Steve does.

RHubsted
RHubsted

I agree M$ should stop trying with the billion dollar hostile takeovers and spend some of that money getting there OS to actually work and then if they can do that "which I don't think they can" but if they somehow accomplish that first then develop your own stuff stop trying to buy everyone out whats the matter M$ are you scared of yahoo.

mattohare
mattohare

Come off it, chuckle, most of Microsoft's stuff is from acquisition not innovation. Almost anything out of Redmond is either from something they bought or copied. Even Vista is more a copy of Macintosh and a bit of Homeland Security/TSA-style security posturing. They can be fairly good at maintaining what they buy, and they can be fairly good at integrating it with their other applications. Even there, they still leave a lot of gaps to fill.

Litehouse
Litehouse

I read something earlier about something Ballmer said. They already have the search technology, what they wanted the most was the customer base.

jspurbeck
jspurbeck

Someone here at TR previous posted a statement that "MS could hire 10,000 software engineers for $100k+ for five years at the price they would have paid for Yahoo. As I see it, the only benefit that Yahoo acquistion would have made is in the 'time-to-develop' category. MS can (and probably will) use that $$$ to out=program both Yahoo AND Google, if they set their minds to it.

gerbo_san
gerbo_san

As long as I can remember, M$ already has a search engine, so... where is its problem? Yahoo is only about the search engine? and google? I think that you're not paying attention. Oh! look, there it is: http://www.live.com/

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