The Story Of Yahoo's Decline

In July, the European Union launched an investigation into the deal, citing antitrust concerns and fueled by the Newspaper Association of America, a subset of the World Association of Newspapers.

On this side of the Atlantic, the World Federation of Advertisers lodged their own complaint with the Department of Justice in September, claiming the deal would have a "detrimental effect on competition, result in price increases and reduce the options available to advertisers worldwide."

At first both Google and Yahoo went on the offensive, saying the deal wouldn't hinder competition and braced for a fight against regulators. Omid Kordestani, senior vice president, Global Sales and Business Development, took to Google's blog to address the issue. "We expect to work closely with them to answer their questions about the transaction.

Ultimately we believe that the efficiencies of this agreement will help preserve competition."

Google compared the proposed deal to the agreement reached with AOL, which garnered no complaints. But the Department of Justice didn't buy it; the investigation dragged on. All the while both companies pledged to work with regulators in order to get the deal pushed through.

But by late October cracks were beginning to show. On Halloween, rumors surfaced that Google was considering walking away from the deal because it was dragging them down. An anonymous source told Reuters, "is [Google] more serious about walking away? Yes. Have they decided? I'm not sure."

Not wanting to give up that enormous stream of revenue, Yang and Yahoo scrambled to find a way to push the deal past regulators while still retaining the Google seal of approval. A few days later, on Nov. 4, Yahoo announced a rejiggered the deal in hopes of getting a federal seal of approval.

But everything that seemed promising for Yang and Yahoo had been gutted. The initial pact partnered the two companies for up to 10 years; the revised deal had a full term of two. The amount of money Yahoo would've generated with Google's help was being estimated at nearly $800 million; the revised deal put a hard cap at 25 percent.

That dropped the net worth of the deal from $250 to $400 million dollars annually to an approximate $80 to $100 million.

Even though the deal had essentially been gutted, Yang was still anxious to get it approved -- after all, by this time the economic downturn was in full swing and $80 to $100 million in this climate is better than nothing. But it was never meant to be. The day after the revised terms of the deal were announced, Google walked away from the deal on Nov. 5.

Writing on the Google Public Policy blog, David Drummond, senior vice president, corporate development and chief legal officer, put the speculation to bed:

"[A]fter four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement."

And perhaps more damaging to Yang and Yahoo, Drummond continued, writing, "[W]e're not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on."

The Aftermath Of Two Failed Deals

Shortly after the proposed Google/Yahoo ad deal corroded at the hands of antitrust regulators, Jerry Yang appeared at the Web 2.0 Summit in San Francisco.

He took the stage with the loss of about $100 million in revenue fresh in his mind. What does the CEO of a company say after a deal like that falls apart? Yang went back in time about six months and asked a familiar partner if they'd be willing to dance again: Microsoft.

Speaking at the conference, Yang said, "To this day the best thing for Microsoft to do is buy Yahoo. I don't think that is a bad idea at all, at the right price whatever that price is. We're willing to sell the company."

Not exactly the inspiring, confident words that the board, stockholders and employees want to hear from their CEO -- especially in the midst of an economic recession. But even though rumors of rekindling the Microsoft-Yahoo merger have occasionally popped up on the Web, Steve Ballmer put those rumors to bed the next day.

Speaking at a business lunch in Sydney, Australia, Ballmer told the group that Microsoft had "moved on." We made an offer, we made another offer ... we moved on," Ballmer said, according to Reuters. "We tried at one point to do a partnership around search ... and that didn't work either, and we moved on and they moved on. We are not interested in going back and relooking at an acquisition. I don't know why they would be either, frankly."

About ten days later, Jerry Yang officially ended his tenure as the CEO of Yahoo through a blog. After the announcement, stock prices rallied.

Until Steve Ballmer, today, quashed speculation that Microsoft would make an attempt to purchase the company now that Yang has stepped down.