It's Not Yahoo, It's Me

So the deal is dead. After months of negotiations with the Justice Department and growing opposition from just about everyone, Google pulled out of its proposed search ad arrangement with Yahoo yesterday. Attorneys with the Justice Department notified Google executives that they planned to sue to stop the deal, and Google just couldn't bring itself to fight it out in court.

"Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners," wrote Google Vice President and Chief Legal Officer David Drummond. "That wouldn't have been in the long-term interests of Google or our users, so we have decided to end the agreement. We're of course disappointed that this deal won't be moving ahead. But we'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."

Yahoo, of course, was particularly dismayed at the deal's collapse, issuing a press release that, for all its euphemisms, was dripping with worry and uncertainty: "Yahoo! continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court."

We'll just bet they're disappointed. Saying no to the Microsoft buyout and rolling the dice with Google and Justice will go down in history as one of the worst business decisions in the history of the Internet. Microsoft once offered as much as $33 a share a few months back; now the company's stock is worth around $14 a share. Microsoft's Steve Ballmer has made noises about buying Yahoo's search business, which is valued at close to $9 billion.

Yesterday, Yahoo CEO Jerry Yang had to go on stage at the Web 2.0 conference and practically beg Microsoft to come back to the bargaining table. "I would say the best thing for Microsoft is to buy Yahoo," he said, adding that it's not just his fault that the Microsoft deal fell through. "Both sides are to blame."

Yang will now have to face Carl Icahn, the notorious rogue investor who forced his way onto the board of directors after the Microsoft deal collapsed. He'll have to eat a lot of crow if he wants Microsoft back. And he'll have to repeat over and over that, yes, he's more of an asset than a liability to Yahoo these days.