Does Gates Mean What He Says About Yahoo?

It’s entirely logical to react cynically and skeptically to Microsoft Chairman Bill Gates’ repeated statements that his company no longer retains an interest in pursuing Yahoo.

According to Mr. Gates, on every occasion this week when he has come into contact with the business press, Microsoft will pursue an independent Internet strategy, building and improving its own web-search and online-advertising properties as opposed to purchasing external assets. Gates says Microsoft has great engineers and can achieve market dominance over Google on its own, notwithstanding the historical record and current market realities.

Said Chairman Bill:

“We have always felt we could do very well on our own and now that’s the path we are focused on,” Gates said in an interview with The Associated Press in Jakarta on Friday.

“The standard strategy for us is to just hire great engineers and surprise people at how well we can compete, even with a company that’s got a strong lead.”

Perhaps so, but if Microsoft had been committed strategically to build its own Internet offerings, it would not have pursued the acquisition of Yahoo. So, given this apparent contradiction between Gates’ words and Ballmer’s actions, a few possible explanations present themselves.

First, we can posit that Gates and Ballmer are at cross purposes on Microsoft’s Internet strategy, with the former favoring the go-it-alone build option and the latter preferring to buy the company’s way into greater market prominence. I don’t see it happening. Gates and Ballmer could finish each other’s sentences. If they had an issue at which they were at loggerheads, they’d resolve the argument behind closed doors, not hash it out publicly.

A second scenario suggests that Microsoft has decided belatedly and sincerely that the Yahoo acquisition option is no longer a worthy objective. As such, the company’s executive leadership has chosen to put the onus back on internal development, perhaps dedicating more resources to the effort henceforth. This is entirely possible, but not as likely as the third scenario.

Finally, Gates’ words — and some ambiguous commentary along similar lines from Microsoft Chief Strategy Office Craig Mundie — are just a ruse, a misdirection, to provoke Yahoo CEO Jerry Yang and his board members, through pressure applied by increasingly anxious investors, to reconsider and come groveling back to the bargaining table. Sadly, I think this is what the Microsoft crew is trying to achieve.

Microsoft is trying to achieve this effect not just with statements from its executive heavy hitters, but also with the carefully timed disclosure that Microsoft has released potential proxy board members from their agreements to serve in the event it made a hostile bid for Yahoo.

Again, as I have made abundantly clear, I don’t think Microsoft should be pursuing Yahoo, not at the previous price and not at a moderately smaller valuation. Still, evidence suggests that Microsoft hasn’t given up on the plan.