Microsoft decided to walk on the Yahoo! deal. After the sharp Yahoo! stock decline Monday, expect many shareholder lawsuits. The press release contained the following open letter to Jerry Yang.

Dear Jerry:
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!'s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week's conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

• First, it would fundamentally undermine Yahoo!'s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
• Given this, it would impair Yahoo's ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
• In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
• This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.
• It could foreclose any chance of a combination with any other search provider that is not already relying on Google's search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft's proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,
/s/ Steven A. Ballmer

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Any guess as to Yahoo!'s closing share price Moday? Vote on this poll and guess below. If you are the first person to guess within a dime you get a free month of access to our online SEO training program.

The short term upside for search marketers is that this lowers the odds of Yahoo! gutting itself by outsourcing paid search to Google.

I just wrote a ~15 page article aimed at helping SEOs estimate how much a top rank in Google is worth.

I would appreciate any feedback you have on making it better. If you like it please hook me up with a Del.icio.us or Stumble. Any and all mentions are appreciated. :)

Summize is a conversational search engine which allows you to search Twitter in realtime. Useful for finding customer feedback even when people do not provide it directly to you. For example, I just found out that for some people the Rank Checker Firefox extension stopped working after the last update. So I just reverted the extension and am awaiting another update from the developer. Summize offers RSS feeds so you can track conversations mentioning your brands and/or important topics.

Summize offers an API which can be used to generate free content for your sidebar if you publish Mahalo-like content, though that is a bit spammy. ;)

Here is a 10 minute and 46 second flash video about how SEO is becoming less mechanical and more social. So far we have about a half dozen members only videos like this one...I am trying to make about one new one each week.

Download the powerpoint file here

Building a well known brand and a sustainable business model in a competitive marketplace is challenging, but if you break things down into pieces and do something every day eventually you win marketshare. People who become successful have large goals like "become the leading source in our market" or "increase profits 150% year over year" but most people who actually achieve those types of goals set smaller goals and work toward achieving them every day.

One of my better habits is writing a to do list. When I scratch things off the list there is a sense of accomplishment which drives further activity. Sometimes the accomplishments are moral victories, learning how to create a little bit of code, or improving the graphical interface of something, while other projects are much more complex, like writing a book or hundreds of training modules. As long as growth is sustainable then all is well. If you stop growing in a growing marketplace then you need to evaluate what you are doing wrong.

• Are you doing too many repetitive tasks that software or a cron job should be able to do?
• Does your site lack viral marketing components?
• Does your site do a poor job of prequalifying leads?
• Are you selling to the wrong market?
• Are you pricing too cheaply and attracting the wrong clients?
• Are you doing a poor job building perceived value?
• Is your conversion process broken?
• Are you doing a poor job of transferring value?

In nearly every growing business at some point in time the answer to every single one of those questions is yes. Each is an area for improvement.

With employees I can come off as being under-appreciating and/or too demanding, largely because I expect people to work as hard as I do, and maybe 2% of people do. When you have the attitude of making incremental daily improvements it is hard for some people to grasp it until you beat it into their heads. I have found it hard to teach most people - especially if they work remotely.

You really need to find that 10% of people who want to add value...and then you need to find the 30% of those who's loyalty exceeds their greed. It is hard to find good workers. As software gets cheaper I suspect it will only get harder to find and retain quality employees as more of the quality people decide to work for themselves, which means that you need to create ways to get customers to do your marketing for you.

I think the key to smoothing out some of the friction with workers is to teach people to set their own score card. Daily contact off the start is needed to set expectations and keep things progressing. But over time have them ask themselves each day what they did to add value, make a difference, and remove market friction. If you are active in your marketplace, are receptive to feedback, are aggressive with push marketing, give away value, and keep trying to build value each day, eventually the profits roll in. It might take a couple years to work out well, but eventually it does.