This time, Microsoft may meet its match in Google

WASHINGTON -- Bill Gates worried that something like Google would come along before it even existed.

In 1995, the Microsoft leader recognized how a powerful Internet player could topple his company from the high-tech pyramid and launched an attack on all potential threats. Netscape, Sun Microsystems and other competitors paid the price.
So did Microsoft. Its tactics triggered a landmark antitrust case that handcuffed the software giant for a decade, hampering its ability to respond when the real Web boogeyman appeared: Google Inc.

But today the shackles are off. Largely unconstrained by the antitrust problems that have dogged it since the late 1990s, Microsoft is the aggressor again.

Its surprise $44.6-billion offer for Yahoo Inc. capped off a year in which Microsoft proved that it was serious about the Internet and willing to throw around its cash hoard.

Yahoo's board of directors has decided to reject the offer, a person familiar with the matter said Saturday. The person, who is close to Yahoo management, said the company planned to tell Microsoft in a letter Monday that the deal undervalues the Internet company and fails to offset its risk if regulators were to overturn the merger.

Although Yahoo doesn't want to sell to Microsoft, it has few alternatives. Many analysts expect Microsoft to sweeten its offer, and Yahoo to accept it.

If it wins Yahoo, the Redmond, Wash.-based software giant will have pulled off by far the largest acquisition in its 33-year history to try to keep Google from getting further ahead.

"Microsoft tends to be a reactive company," said Mark Anderson, an entrepreneur and author of an industry newsletter that counts Gates and Microsoft Chief Executive Steve Ballmer among its subscribers. "They also tend to always be focused on their competition, even down to the individuals that run divisions on both sides."

Google is lobbying against a potential Yahoo deal, saying Microsoft can't be trusted. Microsoft counters that it isn't the dominant player in Web advertising as it is in operating systems and office productivity software.

Pulling for former foe

Fearful of the new giant on the block, some of Microsoft's old enemies are rooting for it.

For years, Chris Tolles had a front-row seat to the brutal side of the so-called Beast from Redmond. The software developer worked at companies that went head-to-head with Microsoft, including Sun and Netscape.

But now he's running Topix, a Silicon Valley company that offers local news and other information online. Google launched a competing product last week.

"Creating a valid competitor for Google would be very helpful to the industry," Tolles said. "That's the irritating part: I'm rooting for Microsoft."

Microsoft, which declined to comment, doesn't enjoy the underdog role.

After its previous attempts to acquire Yahoo or strike a partnership were rebuffed, Microsoft made an unsolicited bid for the company Jan. 31 and announced it the next day. The half-cash, half-stock bid valued the struggling Internet company at $31 a share -- 62% more than its stock's closing price Jan. 31. But with the slump in Microsoft's share price since then, the offer's value has declined to $29.08 a share. Investors expect Microsoft to offer more.

"We keep at things," Ballmer told employees when the bid was announced. "We don't start and stop."

It's been a long, eventful struggle since Microsoft began its online push.

In a lengthy memo sent to Microsoft executives May 26, 1995, Gates warned that the young World Wide Web could spawn a competitor to threaten the software giant's computing dominance. He assigned the Internet "the highest level of importance."