Was Yahoo becoming too open for Microsoft?

Look at the bright side: Yahoo will save a fortune on business cards and letterhead.

Whether you think the breakdown of merger talks between Microsoft and Yahoo will lead to some other, greater good must depend to some degree, I suppose, on how much faith you have in Yahoo’s new Open Strategy. I wonder — how much faith did Microsoft have in it?

Larry Ellison, the guy who runs the Number Two software company in the world, once said that he never seriously considered buying Linux vendor Red Hat, because “they have no intellectual property” — anyone who felt like it could take Red Hat’s code and give nothing in return. He proved his own point a few months later.

So how do you suppose the guy who runs the Number One software company feels about acquiring a company that has already announced plans to open its APIs and its user data — arguably its most valuable assets — to third-party developers, free of charge? It certainly doesn’t sound like the Microsoft way of doing things, does it?

Some analysts, including the Wall Street Journal, say Steve Ballmer is just biding his time. He’ll wait until Yahoo’s stock price tanks in the wake of the failed talks, then strike with a hostile bid when the company is at its weakest. I’m not so sure.

In his letter to Yahoo CEO Jerry Yang, Ballmer notes his decision not to bring his takeover bid directly to Yahoo shareholders. “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,” he writes. He refers specifically to Yahoo’s dealings with Google, even going so far as to suggest that further partnership there could scare off engineers. (Sure — developers just hate Google.)

But might those “steps” also have included Yahoo’s new push for openness? Microsoft is interested in the Yahoo brand, Yahoo’s audience as a channel for advertising, and Yahoo’s online applications as competitors to those of its rival, Google. All this openness stuff is just a distraction — maybe even an annoyance, considering Microsoft has plenty of its own ideas about how to engage developers.

Doubtless, this saga isn’t over yet. If you were in the market for an online service that had a strong brand but a poor history of execution — one was more comfortable acting like a walled garden than a public bazaar –where would you turn next? I daresay that, for Microsoft, there remain other fish in the sea.