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Yahoo! Shouldn't! Sell! To! Microsoft?

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Analysis As The New York Post's "Microsoft eyes search giant in proposed takeover" splash rapidly evaporated over the weekend, you couldn't help but muster some sympathy for the seemingly confused Yahoo!.

A quick recap: the tabloid's "scoop" on Friday sent Yahoo! stock into an unaccustomed rapid climb, until Reuters, Bloomberg and the Financial Times pissed on the story from an even greater height, and The Post swiftly followed up on Saturday with the flaccid sowhatism: "Sources said the talks with Microsoft are wide-ranging and include everything from an outright acquisition to the purchase of an equity stake to a joint venture setup." Which might as well read: "Sources said some big tech executives had lunch with some other big tech executives."

Depressingly for Yahoo!'s top brass, everyone had already decided bending over for the Beast of Redmond would be a good idea. Analysts queued up to waffle for cash about "synergies" and "critical mass" against Google. Some even chirped up with the classic catch-all, didn't-actually-but-I-told-you-so, jeer that the deal had been "only a matter of time".

The blame for their ovine eagerness to put Yahoo! on the block rested on the narrowing shoulders of its CEO Terry Semel, the firm's Hollywood Julius Caesar, who must fear the Ides of July, when he'll be due another earnings call. Prior to the last one, he'd gotten the rent-a-quotes a little over-excited about Panama, Yahoo!'s new advertising platform, by having the temerity to say he "couldn't be more pleased" with its progress. In the highly speculative nuanced world of financial analysis, that was enough to convince Wall Street that Yahoo! was about to deliver a blockbuster. It didn't, and so got a roasting by the most Googly elements of the business and tech press, who'll happily trot out a thousand reasons why Yahoo! doesn't have the coloured balls to compete.

We spoke to Yahoo!'s European boss Glen Drury before the Microsoft shenanigans kicked off last week. He complained: "Everyone gives us a hard time about being spread too thin." And everyone may be right, but it's hard to overstate how much Yahoo! has staked on Panama.

Drury said: "No one would disagree with me that Google has done a better job matching their ads than we have, I think we're doing a better job than MSN is, but our new technology will move us up in terms of matching to exactly where we should be. For Joe Bloggs who's using Yahoo! web search it's not going to affect their experience. We'll be using data which we already collect to match the ads."

Panama is really just the front end of a whole series of staggered upgrades to Yahoo!'s ad-serving platform, some of which have already touched down Stateside and not delivered an instant cash bonanza. The end game for Panama is the slightly spooky prospect of the web knowing when you're at you're most suggestible.

If, say, you were thinking about buying a new car, Yahoo! reckons it will be able to detect from your search behavior how close you are to a purchase decision from the ramp up, and dish up an appropriate intensity of car ads to your browser, all at an appropriately inflated price to advertisers. The UK roll out begins in the next couple of weeks, and despite Semel's expectation management gaffe, the firm is happy to trumpet early success in the US. Drury said: "Interestingly, it's giving Google a push in the US because they've gone back and said they're going to redesign some transparency into their ads system because we've had such a positive response out of giving people visibility."

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