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Microsoft’s $40 billion dilemma

Here's a question for Microsoft Chief Executive Steve Ballmer: Is Yahoo really worth all this hassle?
/ Source: Forbes

Here's a question for Microsoft Chief Executive Steve Ballmer: Is Yahoo really worth all this hassle?

After more than two months of waiting to negotiate with Jerry Yang and company, you finally got frustrated over the weekend and sent a strident letter to Yahoo's board members, giving them three more weeks to come to the table before you start replacing them.

You backed up your emotions with data and facts: Since Microsoft launched its $44.6 billion unsolicited bid for Yahoo Jan. 31, the Internet portal has been trying to wrangle deals with News Corp., Google and Time Warner to stay independent, but no such deal has surfaced yet.

Your stock is down. Yahoo's stock, buoyed by your offer, is up. And that means your offer — which at the time was a 62 percent premium over Yahoo's share price — has eroded a bit. "The public equity markets and overall economic conditions have weakened considerably," you wrote.

( is a joint-venture of Microsoft and NBC Universal.)

Up for debate is whether Yahoo has gained or lost customers for its search engine and other offers over the past two months. You say Yahoo is losing customers. Yahoo Chief Executive Jerry Yang and Chairman Roy Bostock contend Yahoo is pulling its act together.

But the bottom line is that Yahoo is no more amenable to a deal than it was two months ago. Maybe even less so. "Yahoo's business forecasts are consistent with what we outlined in our last earnings call," retorted Yang and Bostock in a return letter. "We have had constructive conversations together regarding a variety of topics, including integration and regulatory issues," they wrote. But Yahoo is worth more than $40 billion and change, the executives maintain.

If $40 billion or so isn't enough for Yahoo, what else could Ballmer spend the money on to bolster Microsoft's business? Fact is, $40 billion is a lot of money, no matter the currency.

Here are a few suggestions for what else Microsoft could get for $40 billion:

  • Hire 40,000 engineers, at $100,000 apiece, for a decade
  • Acquire Facebook (estimated to have a market value of $15 billion), along with just about any other meaningful social networking site, including MySpace, Bebo, Hi5 and LinkedIn. There would still be enough money left over to pay some consultants to help with integration.
  • Spend eight times more than Google did last year to acquire traffic — and presumably make traffic more pricey for Google, to boot.
  • Hire 80 million workers in China to do nothing but click on Microsoft properties and related ads for 10 years.
  • Promise a free Big Mac to everyone who clicks on a Microsoft ad — and give away 14 trillion of 'em.