Yahoo - Still Not Feeling MSFT, Now Talking To AOL

I read this morning that Yahoo & AOL are actually in talks about a possible partnership which (they hope) could help fend off Microsoft's friendly advances. This news comes on the heels of last week's discussion with News Corp.

Clearly, Yahoo is showing that it will consider any alternative to partnering with Microsoft. This is no longer about trying to drive the price up by $3 - $5 dollars. I can't see how a deal with AOL would be significantly more advantageous than one with News Corp. These guys are seriously looking for a "White Knight".

AOL has some similar products to Yahoo - and a merger would probably provide a whole new bunch of integration headaches which are sure to distract Yahoo's Mgt, at a time when they desperately need to provide stronger returns for Investors. According to the Silicon Valley Insider, If the companies combine, therefore, Time Warner could have about a 20% ownership in the New Yahoo. One hurdle to an AOL-Yahoo deal in the past, however, has reportedly been that Time Warner doesn't want Yahoo stock, which means that the deal would have to be done at least partially for cash. A private equity firm could provide some of that cash, but then the question would be: At what value will Yahoo issue the new stock--the post-Microsoft bid $29, or the pre-Microsoft bid $19?

Truth is, Yahoo is not going to find a Suitor better positioned to offer a strong incentive to it's shareholders, to sell out. It's also worth mentioning that -with Yahoo clearly struggling to build its Search Business, Google stands to gain even more in the short to mid-term and could lock up the Search Syndication / Distribution sector - for years to come.

Last week Friday (02/16), the World Street Journal reported that Alibaba, the Chinese Internet Company, part-owned by Yahoo Inc, has hired advisers to help negotiate for expanded management independence in the event of its U.S Partner, being acquired by MSFT.

Alibaba hasn't publicly commented on the Microsoft bid. On Friday, Jack Ma, told his employees that Alibaba management "will always maintain its independence and management control" over the company, regardless of who its shareholders are. Alibaba's reaction is not surprising, given the Chinese Governments involvement in Internet Companies.

I can't figure out why Yahoo is so dead set against this deal. It's doubtful that Microsoft will kill off any of Yahoo's priced assets, as this will certainly diminish the power of the Yahoo Brand, which is undoubtedly reflected in the $42B offer.

Yahoo's initial response indicated that "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."

Fine, but it's safe to say that MSFT will probably come back with a higher bid - especially since $31/share bid has dropped. Both companies must know that by dragging this out, they risk losing talented Leaders & Mid-level Managers, in both Corporations. If Yahoo forces Microsoft's hand, and the Software giant decides to go hostile, that would be the worst possible scenario for Microsoft. Ultimately, Yahoo shareholders would prevail over Jerry Yang, he'll resign and a lot of his loyalists will follow suit. Many who are on the fence, will most certainly be poached by the likes of AOL, Google, IAC, eBay, Large Worldwide agencies and a host of start-ups

That would make the integration of Microsoft's OSG and Yahoo's Global Org, much more complicated and very expensive. What may have been a 1 year integration plan, could quickly become a 24 - 36 month affair. That would certainly have a significant impact in the $1B in gains and expected growth in Search Revenue & Query Share, which this partnership is expected to present.
For now, this saga makes for some very interesting commentary. However, I can only imagine how Yahoo employees are feeling right now.....

Yahoo & Google - Can Lightning Strike Twice ?

Much has been written about the reasons for Google’s remarkable growth and the Global Power of its Brand. It’s worth reiterating that the first Google site was launched in ’97, at a time when literally no one was paying any close attention to Search. The key reason for the company’s success is that it’s able to provide core value to the 3 key Audience Segments which power the entire online services industry. Online Searchers, Search Advertisers and Search Distribution Partners.

Google
The Google founders set out with one key goal in mind – to create a Search Engine which would deliver more relevant and hence, more useful results than any other Engine available at the time. The extrinsic value of the Page Rank Algorithm helped fuel the word of mouth buzz about the Google and its popularity grew amongst Internet Users, the most important Audience Segment. By the Year 2000, Google was synonymous with Search – and was becoming the World’s best known Pure Search Engine. That same year, Google started selling advertisements associated with Search Keywords. The popularity of the adwords platform helped create a second audience segment – Search Advertisers. The value created by the adwords platform was a clear win-win for Google & its Ad-buying customers and Internet Users were not deterred. The click threshold which Google applied to its keyword bidding model also helped improve ad relevance.

Around that time, Overture made a key decision to stop driving traffic to its own site, and instead syndicate its monetization platform to other search engines and general interest sites. By the end of 2001, Overture had distribution deals with most major sites, portals and Search Engines –with the exception of Google. By this time, Google was widely seen as the only Pure Search Engine and this further enhanced its popularity in the minds of Internet Users.

In 2002, Google started to aggressively build its own distribution network. It signed deals with Key Overture partners – including Earthlink, Ask Jeeves and most significantly, AOL. These distribution partners became the 3rd and final key Audience Segment. Overture was left with two major partners – Yahoo and MSN. Today, Google is far and away the Global Leader in Search Syndication – after re-signing with AOL, Ask and thousands of smaller general interest websites. Google’s Financial Reports and accompanying commentary provides some indication of the benefit of a strong distribution model on Google’s query volume and revenue.

I provide this historical context – in order to make the point that Google’s popularity and brand Strength didn’t happen overnight and it can be traced directly to its laser focus on providing a valuable offering to its core audience segments (Searchers, Advertisers/Customers and Distribution Partners). The core value proposition remains the relevance of its core web search results and the overall performance of its engine.

Yahoo
Yahoo was launched in ’95 – primarily as a web directory and later diversified into a Web Portal. Yahoo originally sourced Search Technology from Inktomi from ’98 – 2000. In June ‘2000, Yahoo and Google signed an agreement which retained Google as the default world-wide-web search engine for Yahoo sites. Google’s popularity grew in leaps and bounds as it benefitted from brand association with Yahoo and AOL – two of the leading General Interest Portals – at that time. Gradually, Google started adding features people normally went to Internet portals like Yahoo, AOL and MSN - to find. Including, Maps, News Aggregation Services, white pages-style phone and address look-ups, maps and Web site translation services. At the time, Yahoo was monetizing Google Search Results through Overture.

In Dec ’02, Yahoo purchased Inktomi, then in July ’03 it acquired Overture Services, Inc. and its subsidiaries AltaVista and AlltheWeb. On February 18, 2004, Yahoo dropped Google-powered results and returned to using its own technology to provide search results. At the time, the Overture deal seemed to make sense – even at $1.6B, because Yahoo was very much dependent on Overture for its paid listings and the control of both key elements (Search Engine & Monetization Platform) was supposed to help secure Yahoo’s future as a search destination. What has happened since then is instructive – Yahoo lost its marquee client – MSN.com and its Search Business has been in freefall ever since. The Company did invest in improving its YSM monetization platform, but it has not been able to maintain query share or

deliver sustainable Search Revenue. Although the Yahoo brand is a strong one, it’s not Synonymous with Search. Although it still provides a good Search Engine to Searchers – the organization has struggled to compete with the relevance of Google’s Search Engine and the efficiency of its ad platform. As a result, it’s Search Distribution Network has suffered, query volume & share is down Worldwide.

Ironically, recent reports indicate that Yahoo may actually be thinking about coming full Circle and once again partnering with Google – pure speculation at this point though, but it's not surprising that Jerry & David would consider this option. A sale to Microsoft would mean the end of a dream for both of them - although I strongly suspect the Yahoo brand would live on regadless. Google clearly fears that a combined Microsoft/Yahoo entity could slow the Google Juggernaut. At the very least, the online behemouth could provide a viable alternative to online advertisers, many of whom don't want to do business with Google. One things for sure, Google is not in a position to bail out Yahoo, regulators would be waiting with baited breath to kill that deal. They can't simply offer to host Yahoo's search or monetize Yahoo's search engine, as they did before. It's too late for that - $44B too late......

Can Anything Slow The Google Juggernaut?

The term juggernaut is used to describe any literal or metaphorical force regarded as unstoppable that will crush all in its path. Even more descriptive: any large, overpowering, destructive force or object, as war, a giant battleship, or a powerful football team.

Seems to me that a lot of people are going to great pains to define Google and explain their Mission/Vision. Growing up - I would always get into the odd argument with my elder sister. The defining moment of the conflict would always come when she say "I know you better than you know yourself". To which I would often reply - how can you possibly know me when i'm still trying to figure things out for myself?

Don't bother trying to define Google's Mission and Vision - don't even try to decipher their reasons for doing anything. How can you - when Google itself is still trying to figure things out? Heck - even the "do no evil" mantra has evolved quite a bit since we first heard it.......

That said, i'll define Google as the closest thing we have to a Juggernaut - in Online Space. A starting point for 400 million Internet users and the No. 1 gateway to the Net's vast commercial potential. With more data on what people are searching for, Google can serve up the most targeted and relevant advertisements alongside the results, drawing more clicks, more cash, more users—you get the idea. Consumers love Google's simplicity and results. At last count – the Search Engine which is clearly re-defining the advertising world, controls 56% of Global Internet Searches – and counting. No wonder eager advertisers shoveled some $10.6 billion into Google's coffers last year, up an astonishing 73% from 2005. If you can believe it, Google's $144 billion market value tops that of Time Warner , Viacom, CBS, ad agency giant Publicis Groupe and the New York Times Co. Combined.

Think about all that information on people’s buying habits – that alone could be worth Billions some day. Certainly – not everything Google does is successful. The whole Adwords for radio, print, and television concept - is yet to get off the ground.

As the Juggernaut continues to destroy business models – in advertising, publishing and just about everywhere else, there’s a growing fear that Google may be becoming too powerful. Recently, NBC Universal and News Corp announced big plans for a rival to Gootube, and I think we all know what that means – since UGC is clearly not the biggest driver of YouTube’s popularity.Viacom is took things a step further by suing Google for a headline-grabbing $1 billion, charging YouTube with willfully infringing on copyrights by allowing users to upload clips of The Colbert Report, South Park, and other TV shows. A couple of weeks earlier, Copiepress, a group representing Belgian and German newspapers, won a copyright case that could sharply limit Google's usefulness if it sets a precedent.Even some of Google's advertising customers complain that the company sometimes appears cavalier about their concerns.

That's partly because of the very technology on which it's built. Its search-ad business runs on a pointedly opaque set of complex mathematical formulas that give high placement to ads based not simply on which marketers pay the most but on how many people click on them and other factors. That prods advertisers to create better ads and more relevant Web pages to which the ads send them. But such a system leaves everyone to guess which ads work best and how much to pay for top placement, and the ranking can change without warning. I think that’s one of the key reasons why online advertisers worldwide are banging their heads against their monitors at this very moment.

Perhaps it's time to start changing Google - the verb to Google the noun

The Noun - Juggernaut: "a massive inexorable force that seems to crush everything in its way".