So much has already been said and speculated about Yahoo!’s rejection of Microsoft’s $44.6 billion offer that it would be screaming in the echo chamber to add my analysis  and prognostications about the offer and its rebuff.  Except I can’t help making one (hopefully) original observation:  This episode may be the best thing to happen to Yahoo! and its employees in a very long time.

When the proposed deal was announced 11 days ago, I wrote – assuming Yahoo! to be a willing recipient of the offer – that getting the deal past regulators would be a challenge and one that could demoralize an already struggling Yahoo!

Now, Yahoo!’s decision to reject the offer could have the opposite affect on the company and it’s employees.

From the press release issued by Yahoo this morning:

After careful evaluation, the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments.

Roughly translated: “Microsoft is out of its friggin’ mind if it thinks for a minute we’re some kind of cheap date.”

And therein lies the motivation. Nothing energizes an organization and galvanizes employees quite like righteous indignation.  Now, Yahoo! has something to prove, damn it!

Sure, Yahoo! left the door ajar for counter offers and other “strategic options,”  but the Microsoft bid – and its rejection – might be the best thing to happen to Yahoo! in a very long time.

I woke this morning to the news that Microsoft has tendered a $44.6 billion ($31/share) offer to buy Yahoo in a cash and stock deal. (And here I thought I was getting up early to pack for vacation!).

The acquisition has been rumored and speculated on for a year or more, and even in the dawns early light there’s plenty of commentary on whether the deal should or should not happen, whether it makes sense, what the combined company might look like, what Microsoft ought to do with the Yahoo asset.

When rumors of a possible merger circulated last May, Om Malik called a Microsoft-Yahoo merger a “bad idea.” He wrote:

Marrying a company with Internet DNA (Yahoo) with another who can’t take a step forward without turning its neck twice (looking back at the PC) is not that easy. Will this deal become the 21st century version of AOL-Time Warner merger, and a high-water mark for the current boom?

One-time Wall Street wonder-analyst Henry Blodget called a potential merger a “smart strategic move” but advised Microsoft to create a new company Internet company in the process.

Would it be a smart strategic move for Microsoft and Yahoo to combine forces? Absolutely. Is the best way to do this to have Microsoft suck Yahoo into the massive Windows/Office empire? Absolutely not. If Microsoft buys Yahoo, Microsoft should immediately spin the Yahoo-MSN business out as a separate company. If it doesn’t, both Yahoo and MSN will die

Now that the deal has gone from rumor to announcement, there’ll be plenty of jockeying around these two, and a myriad of other, opinions. I’ll leave that speculation to folks who are far better arm-chair quarterbacks than I. But what I will say is this:

Not so fast.

I’ve seen this play before and while (for the record) I think this is a brilliant move on the part of both companies, I question whether it’s a deal that can get done. Remember the mid-90s when Microsoft tried to buy Intuit in a play to own the small business market? Well, I do. After the offer comes the regulators and after that six months of wrangling before both companies had to agree that they couldn’t come to final terms that would also suit the suits in Washington.

The detritus of that aborted merger took years to clean up. Intuit employees, once proud Davids in a battle with Goliath – a battle in the finance software market it looked like it was winning — had first reset its thinking that Goliath may have won after all, only to find the battle would wage on after all. It took considerable time for Intuit’s people to get their heads back in the game and I would argue the company was never quite as competitively hungry in the personal finance software market after that.

And, of course, there were years of insider trading investigations that compromised several Silicon Valley execs and their families.

Intuit has healed from that on-again-off-again proposal, and certainly is a stronger, smarter, better company today than it was a decade ago. But it took years for the company to get over the jilted deal.

This Microsoft-Yahoo proposition smells a lot like that ill-fated Intuit proposal. The consolidation of two significant networks will make regulators look sideways at the deal, I’m certain. On one hand, the combined companies do make an important counterweight to Google. On the other (and I think this is the hand that will win out), the combined assets may consolidate the advertising market and combine (and thereby limit competition) too many consumer Internet services to pass muster with regulators.

I may be wrong, and it many ways, I hope I am. But even while the shareholders and employees are sipping mimosas this morning, they need to be prepared if they should be left at the alter.

We first met Nexo Systems more than a year ago, and were so impressed by its Web creation and collaborative environment that we invited the company to make its debut at DEMO 07.  In a marketplace filling with competitors, Nexo Systems stood apart from the crowd, largely due to its intuitive interface and ease of use. In the DEMO program, we wrote:

Nexo Systems takes group collaboration one step closer to consumer-friendliness with an extremely intuitive, couldn’t-be-simpler, module-based site builder.  Nexo’s founders recognized the positive sin the current group leader, Yahoo!Groups, and worked to integrate similar technology into their product. But they removed any limitations, added all manner of fun widgets to drag and drop,. and most interestingly, game the pages an open architecture for those users with a bit of savvy.

Clearly, the company  not only stood apart, but it stood out and captured the eye of Shutterfly.  Earlier this month, the  online photo site acquired Nexo Sytems, in a cash and stock deal totaling less than $15 million.  Nexo Systems was privately funded by angel investors.

Nexo Systems’ founders Craig Jorach and Tom McGannon will join Shutterfly’s technology team, giving Shutterfly a talent-boost, as well as a “next-generation sharing platform,” according to a statement by Shutterfly CEO Jeffrey Housenbold.

By most measures, a $15 million acquisition is a modest outcome for a Silicon Valley startup, and certainly not the payday an institutional investor would want.   Still, it’s not a bad pay day for a small team.  Assuming typical seed investment and cap tables, the deal provides the capital and experience that will fuel future ambitions.

It’s also most certainly the prototype deal for the army of capital efficient Web 2.0 companies who have developed some decent technology framework, attracted a respectable user base, and who will likely run out of steam before they run into additional venture capital.   We’ll see more of these M&A deals through the remainder of the year as established companies jump start their next-generation offerings, capture Web 2.0-savvy engineering talent, and take some noise out of the market.  

We were pleased to read the news this morning that Sun Microsystems tendered a $1 billion offer to acquire open-source database provider MySQL. The deal has significance in a number of ways, not the least of which is the financial windfall to founder Marten Mickos and the company’s investors, Index, Benchmark, IVP, Intel and SAP, who put a reported total of $39million into the MySQL.

First, it’s further evidence that open source plus services business models can work, and that is no doubt as important to Sun as is the position MySQL gives Sun in the $15 billion enterprise database market. Sun demonstrated its commitment to free and open software when it turned the foundations of Solaris, Java, StarOffice, and other component technologies over to Open Source. But somehow, the acquisition of MySQL is a grander “money where your mouth is” gesture and solidifies Sun’s commitment to Open Source in the enterprise.

Here’s what CEO Jonathan Schwartz wrote in his blog this morning:

The good news is Sun is already committed to the business model at the heart of MySQL’s success – first investing to grow communities of users and developers, and only then creating commercial services that attract (rather than lock in) paying customers. Over the past few years, we’ve distributed hundreds of millions of licenses and invested to build some of the free software world’s largest communities. . . . Free and open software has become a way of life at Sun.

. . . With this acquisition, we will have . . . positioned Sun at the center of the web, as the definitive provider of high performance platforms for the web economy. . . This creates enormous potential for Sun, for the global free software community, and for our partners and customers across the globe. (Read the entire post here.)

There’s a second and more subtle — but extremely important — impact of the MySQL acquisition and that is the impact the announcement may have on European technology startup communities. Throughout Europe, technology entrepreneurship remains an oddity, and success stories are relatively rare. We’ve worked within the European technology community for nearly a decade and can still count on our available digits the number of grand-slam exits for tech startups there, and the social and cultural risk of entrepreneurship remains high.

Perhaps, Mårten put it best during a keynote speech at Guidewire Group’s Innovate!Europe 2005 conference, as he accepted the award as Entrepreneur of the Year. Society’s values, he said, are reflected in the heroes it chooses. “We must celebrate entrepreneurs and turn them into heroes in order to build a society that values and honors technology and business innovation.”

Mårten and MySQL have become heroes.