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.

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