As John Paczkowski notes at All Things D, this deal was supposed to generate as much as half a billion dollars worth of additional cash flow in its first year, money Yahoo could definitely use. But more than that, this deal was a way of trying to stand on its own two feet (albeit while leaning on Google for support), and that is now gone. Microsoft, which had its takeover bid for Yahoo derailed by the Google arrangement — among other things — is no doubt doing the math on another bid.

The only problem for Yahoo is that instead of a $45-billion deal at $31 a share, Microsoft is more likely to bid about half that, and that’s if it even makes another bid for Yahoo at all. Nice job, Jerry. How many failed Hail Mary passes can one CEO throw?

Update:

VentureBeat’s Matt Marshall is reporting that an internal Yahoo memo says to expect “a major historical announcement” later today, and the rumour is that Jerry Yang will step down as CEO. Kara Swisher at All Things D says that is dead wrong, and so does the New York Times DealBook blog. VentureBeat has now updated its post and quotes a Yahoo source as saying there is no truth to the rumours.

I don’t know the answer to that question, but I still think it’s worth asking. No doubt many users of Google Docs will shift to Microsoft’s version, in part because it will make integration with their existing corporate systems easier, or because their employers will make its use mandatory. Others may find that Microsoft’s Web apps offer better compatibility with regular Office programs (something that Google Docs still isn’t that good at, at least when it comes to advanced page layout and that sort of thing). But what about the competition between Microsoft’s Web Office and the real Office?

I would imagine that Microsoft is going to try its best to make Web Office just useful enough to entice people away from Google, but not nearly nice enough to tempt them to drop the regular installed version of Office. But no matter how hard it tries, there are likely to be small or medium-sized companies that decide it’s just as good to use the Web version as it is to pay $300 or whatever per seat to get an authorized copy of the desktop software. That’s going to be money right out of Microsoft’s pocket, since Office generates truckloads of cash for the software behemoth.

Maybe Microsoft will be able to manage the process so that it doesn’t cannibalize its Office franchise too much, or maybe it will err on the side of crippling the Web Office so that it doesn’t harm the installed software versions. But either way, that’s a tricky balance to strike.

I made a marketing expert friend of mine mad recently when she said that the marketing professionals she knew didn’t like the original ad — and thought Microsoft was getting taken to the cleaners by its ad agency, Crispin Porter + Bogusky — because it was a dumb idea, or at least not a smart one. I tried to make the point that I don’t think Microsoft cares whether she and her marketing colleagues think the campaign is “smart” or not. They aren’t the target market any more than Mike Arrington is. I think whoever put these together is really just trying to humanize a giant company, and that’s a tough assignment.

Seinfeld may not be all that funny in these ads, but then it’s tough to do his shtick without some energetic foils like George Costanza or Kosmo Kramer — and let’s face it, Bill Gates is no George Costanza. He has zero energy onscreen (hey, if he needs energy, he pays people to generate energy for him). But still, the idea as I see it is just to make fun of the fact that Bill is a billionaire and he’s kind of clueless and out of touch (and to get some buzz as well, do doubt), and Seinfeld is a great choice for that kind of ad. He’s filthy rich, and yet many people still see him as the sneaker-wearing funny guy and they love him.

When it comes right down to it, I like these ads better than Apple’s celebrated ads with the Mac guy and the PC guy. They may radiate “cool” and “hip,” but the fact is that the Mac guy comes off as a snotty, arrogant little twerp. Most people I know — even those who adore Apple products — seem to sympathize with the PC character, who by contrast is genuinely likable. To me, the Apple ads are a total failure, and yet I don’t think anyone really cares, because Apple’s products are so great that they effectively market themselves.

I can’t remember whether Steve used to work at a car company before he joined Bill Gates at Microsoft (I’m pretty sure he worked at Procter & Gamble) but there sure is a lot of talk in the memo about driving. One of the company’s core goals, for example, is to “drive end-user excitement for our products.” My translation of that would be: “Come up with some way to force people to buy Vista and Office, whether they want to or not.” What the hell does “drive end-user excitement” even mean? I’m hoping it has something to do with building better products, but it’s hard to know for sure. Sounds like a blank cheque for the marketing department to come up with some happy videos of families smiling and using Vista to make Grandma a birthday card.

A couple of paragraphs later, Ballmer says that the company needs to “drive developers to create rich applications for Windows” to help promote Silverlight (Microsoft’s version of Adobe’s AIR). How do you “drive developers” to do something? Obviously there are incentives you can offer, but it seems to me that the best way to convince developers to come up with cool apps is to have a great platform that allows developers to do interesting things and reaches the audience they want. Apple seems to have developers beating down its door for access to the iPhone, despite the fact that it often treats developers like crap.

Just a few paragraphs later, when Steve is talking about software and services (which is what Microsoft calls “software as a service” or Web-based applications) he refers to “driving change in business models through advertising, subscriptions, and online transactions.” Once again, it sounds like Microsoft believes it can force people to do things through the correct application of pressure, incentives, marketing, etc. More than anything else, it sounds like a memo from some government ministry in a centrally-planned economy. The people say they don’t want more potatoes? Then we must “drive change in potato-consumption models through taxation and random beatings.”

I more or less skipped over the parts about competing with Google by “out-innovating” them through “organic innovation,” which I think refers to a secret recombinant plant-DNA program Microsoft has going in upstate Seattle. And I can’t bear to talk about the part where Steve discusses the Yahoo debacle, which he describes as “a tactic, not a strategy.” Parse that one if you dare — I’m not going to. But towards the end, Ballmer talks about splitting Platforms and Services in two, and says there will now be the Windows/Windows Live unit and the Online Services unit. He might as well have said that the company has decided to set up one unit called the Ego and another one called the Id.

You might think that the Windows Live unit — which has to do with Windows Live Mail (formerly Hotmail) as well as the newer online Office-type offerings — would fit pretty well with something called Online Services, but you would be wrong. Online Services, as far as I can tell, has to do with search and advertising and MSN, all things that are more or less either weak or failing. The Windows Live business is aimed at pushing more of Microsoft’s products online in some form or other, whereas the Online Services unit is focused on taking things that already exist online and somehow making them work better. The fact that Microsoft sees those two goals as mutually exclusive says a lot — it’s like the embodiment of the company’s bipolar disorder.

But don’t worry about Microsoft’s future — Steve says he is putting things in place to “drive the next generation of growth and success.”