ENTER THE PROS  By Michael S. Malone

The new Yahoo-Microsoft ten year deal — by which Yahoo will adopt the MS Bing search engine and Microsoft will take over the global selling of premium search advertising for both companies – is a reminder of what veteran business professionals can accomplish . . .especially in desperation.

In case you’ve lost track of the byzantine history of the negotiations between these two companies, here’s a quick summary:

In February 2008, Microsoft finally faced the reality that, at number 3 in Internet search, it was going to lose the race to dominate the multi-billion dollar search engine business to Google, the latter having run up a nearly 80 percent market share. In what appeared to be one final shot at staying in the game – and perhaps betting, not without reason, that a high-flying youngster like Google might stumble – Microsoft CEO Steve Ballmer decided to make a run at buying the third player in the search game, struggling Yahoo!, the distant number 2 company in search. Microsoft had tried to buy Yahoo several times in the previous years, but now it went for a hostile takeover.

The strategy was met with mixed reviews by industry insiders. On the one hand, it was an unexpectedly bold play by Microsoft, a company long since written off as too big, too old and too slow to effectively compete in the fast-moving 21st century tech world. Its bid for Yahoo showed the world that Ballmer & Co. were still willing to think big, and not just collect royalties on Windows and MS Office. Further, with the economy still strong and with a lot of cash on hand, buying Yahoo also seemed like a fairly safe play: at worst, given the enduring loyalty of several hundred million regular Yahoo users, it would simply be buying safe added market share in the search business.

On the other hand, the offer price – it reached more than $45 billion – was shocking. After all, Microsoft and Yahoo were trailing so far behind Google for a reason: their search products just weren’t that good, and Google had brilliantly captured the Zeitgeist of the era. So, the odds that bolting two losers together would create a winner were slim to none, even if Google did manage to slip up.

And that bleak analysis didn’t even take into account the merger process itself. How exactly would you meld Microsoft (insular, arrogant, most of its old entrepreneurial fervor long gone) with Yahoo (maverick, dispirited, bleeding top talent from every door)?

That second question never got answered because, to the business world’s astonishment, Yahoo decided to fight the takeover. In Silicon Valley’s long, checkered history of dumb executive decisions, this one may prove the dumbest of all. And it will long be debated just why Yahoo said no to such a fortune.

The most likely answer, I think, was a combination of an executive row in transition and entrepreneur with misplaced loyalties. Months before, Chairman/CEO Terry Semel had been booted from the top of Yahoo. Semel was a competent, nuts-and-bolts former Hollywood studio boss who had turned around a troubled Yahoo six years earlier and then successfully ridden the Internet boom. But he had been without technological vision (indeed, he had never surfed the Net before taking over Yahoo) and so, as the tech world moved on, Yahoo peaked and then went into a long slow glide towards inconsequentiality.

That lazy death spiral had gotten Semel fired, but it looked positively appealing in light of what followed.

One thing you could never accuse Semel of was sentimentality about Yahoo: the fact that he continued to live in LA while running a Northern California company was proof of that. So you can only assume that had he been in the cockpit when an unfriendly Microsoft came calling that last time, he would have made one quick counteroffer to test Ballmer’s intent . . .and then taken the deal. Today he would be a hero to Yahoo shareholders everywhere.