|Could outsourcing search-advertising save Yahoo?|
Handing control of ads to Google an option; questions about viability
SAN FRANCISCO (MarketWatch) -- Faced with Microsoft Corp.'s $44.6 billion "bear hug" offer, Yahoo Inc. may be considering a move to hand control of its troubled search-advertising business to Google Inc. in an effort to remain independent.
Such an "outsourcing" deal could cut costs at Yahoo while bringing in cash to appease investors already anticipating a payout from Microsoft's $31 a share bid.
Under the terms of such a deal, the paid advertisements, or "sponsor results" on Yahoo search pages, would be selected and delivered to Internet users by Google, which would then provide a share of any resulting revenue to Yahoo. An up-front payment from Google could be used by Yahoo to placate its shareholders if the company chooses to forgo the lucrative offer from Microsoft, which represented a 62% premium to Yahoo's market value when the bid was announced last week.
Some analysts believe Yahoo taking an up-front payment from Google is simply a short-term fix.
But such as move also has several drawbacks. Some analysts believe Yahoo taking an up-front payment from Google is simply a short-term fix that would hurt future cash flows without improving the company's overall business.
Old timers here remember very well that Google was nothing some 6-8 years ago. Then Yahoo outsourced search to Google and each SERP on Yahoo carried Google's logo (linked to google.com) on the top right hand corner of the page. That very move advertised the google and ensured that google captured the market share and became what it is today.
So why was Yahoo promoting Google? Reason is the same as it is now. They wanted to earn money from search without investing in development and operation of a proper search engine company. They had the required basic technology from the Inktomi but they never kept pace with google in developing their own search engine because of this start-stop-start approach. Outsourcing search to Google will only delay Yahoo's demise and will erode their share price even further. I believe there are only 2 options for Yahoo.
1. Either accept that their technical and PR team was just not not good enough to compete with google and accept Microsoft's bid.
2. Develop their own proper search engine that is good enough to compete with Google. If they can't compete then they will die, sooner rather than later.
I think it could well be interesting. Google would certainly want to go back to the days "Yahoo search powered by Google"
Google normally expect companies to pay to display Google results, but the question is. Would Google be willing to pay Yahoo! to gain market share in search. Not only does Google gain in the market, but Yahoo! value increases based on projected earnings. This may make the proposed takeover even more out of the reaches of Microsoft. It would also make Yahoo less desirable.
Yahoo need to do everything that can to strengthen their financial situation, increase their cash reserves and sell of anything that they don't 100% need to remain competitive. Search patents would easily be acquired by Google. It makes sense.
$44 billion seems pretty high. I think they'd be fools not to take it. If they partner with Google, they are pretty much stuck with them. Microsoft won't buy a company that's powered by Google for $44 billion. Google wouldn't pay near that much for it even if they powered it. Sink or sell time for Yahoo.
I wonder how much the SBC Yahoo! partnership is driving Microsoft's offer... Microsoft has been paving new roads lately. They've made the move to develop technology to go in cars... I wonder if they want a way directly into the homes of the US through DSL. SBC powered by Microsoft?
|Yahoo need to do everything that can to strengthen their financial situation |
They sure do - but apart from the city brokers and merger lawyers etc. who will all win big out of this, this is so clearly a short term strategy and will only put a 'bit' of cash in the bank.
Short to Mid term Y! surely loses a core part of it's current business and therefore value - the YSM PPC and all affiliate partners (of which there must be 10k plus)
As G becomes more powerful (as of course it would) G can simply reduce rev share to Y year on year and keep more for itself. After all they have prevented M$ getting hold and by the time they have done with it... $31 per share will be a pipe dream.
So Y! loses it's YSM arm, loses time for developing a decent search product that could hope to challenge G (or anyone else for that matter!) so that by the time they feel they have to get out the G contract cos they are being shafted they are well and F*****d as a business anyway.
G is a business - not a charity. It would screw Y just as soon as it woudl 'do no evil!'
Bye bye Y!Search
Just my 2c's
[edited by: TinkyWinky at 3:47 pm (utc) on Feb. 8, 2008]
The New York Giants were 13-point underdogs going into the Superbowl, and no one but Mike Ditka thought they had a chance in hell of winning. Yet Manning and crew are finishing their 100th bottle of champagne while our thoughts now turn to MSFT's $44.6B YHOO buyout offer.
Most people think Yahoo will end up accepting the offer, but I think not. Yahoo's one reason for being in this <$20/share situation is poor performance in sponsored search, and that can easily be fixed by outsourcing to Google, who will now negotiate much more favorable terms that they likely did when G & Y! last talked about a relationship. Anti-trust issues are unlikely, IMO, to block such a partnership for two reasons. For one, in Europe Yahoo's share of market has become so small and G's so big that Google going from 85 to 88% or from 92 to 95% makes no difference - Google already is a monopoly and any EU investigation would only serve to confirm that a monopoly *already* exists. Second, U.S. regulators would likely not block the deal because it's just that - a deal and not one firm buying another, but rather a well-known brand whose likely demise in the hands of MSFT would really put Google in a position of power. Think about it - when rumors hit in the past of Yahoo outsourcing search to Google, was the market worried about anti-trust issues? No, they weren't, and anti-trust issues are even less of a concern now - les jeux sont faits.
If MSFT really believed in Yahoo they would've offered something in the $35-40/share range in order to leave any doors open to other partners/bidders, but they didn't. That's perhaps the best indication of what would happen if this transaction does go through. Hardcore Yahoo's would leave for startups by the 100's during a long regulatory clearance period, betting on the value of startup options over the paltry sum they'll get at $31/share. Consumers would flock by the millions to Google out of sheer disdain for all things Microsoft, leaving Yahoo with one part O&O search traffic, and two parts non-converting fly-by-night distribution partner crap.
On the other hand, if Yahoo partners with Google for search, I can easily imagine a scenario where Yahoo *gains moderate search marketshare*. After all, a super-majority of both Yahoo & Google users overlap according to Nielsen, and users might henceforth perceive Yahoo Search as 'Powered By Google' and start using it rather than hop over from Y! Sports/Finance/Travel/Weather/Health/etc to Google.
With Yahoo shares trading close to MSFT's offer price, it would appear that the Street's betting against an independent Yahoo; my bet, though, is for a Y!/G distribution deal and the rekindling of the Bay Area bonds the two firms once knew.
sell the $17 Billion in outside assets to please investors short term, outsource to google and and keep a leaner, meaner corp. Not an A+ scenario, but selling to msft ain't either..
Yahoo! outsourcing to Google is just bad news for everyone on the internet.
Today when webmasters get dumped in Google they still get a trickle of traffic from Yahoo and Live. Dump Yahoo! Search and those webmasters that can't get anywhere in Google will get totally reamed.
Worse yet, if Yahoo! outsources to Google it actually makes Google the monopoly everyone thinks it is already.
As others said, Outsorucing Search is good for yahoo in the short term, but longterm its bad. IMO, combining Yahoo's great brand with Microsoft's distribution power via IE will create a strong #2 Google competitor (which we all want!)
[edited by: gopi at 6:51 pm (utc) on Feb. 8, 2008]
I think if push came to shove, the DOJ would actually determine that Y! partnering with G *doesn't* make G a monopoly, primarily because Y! would still exist as a search engine and it would only be the paid search results that would be outsourced to G. Also, you have the fact that Baidu is now the #3 search engine worldwide and G's 3rd place status in Asia to consider. Lastly, there's the fact that search, for all its importance, is only 3-4% of worldwide advertising and 40-45% of online advertising.
|Most people think Yahoo will end up accepting the offer, but I think not. |
I think it is most likely Y! would accept this offer. Corrosion of Y! started sometime back and they were never serious or innovative about Y! search or mail. Outcome is nothing surprising. Y! perception was wrong that it could be #1 destination on Web and #1 trafficked Web sites. However, it showed up when their advertising revenue declined vastly. Y! search is not only thing. Y! mail has not been very much good. Their frustration shows up when they purchased Zimbra. It is best if Microsoft handles Y!, which is falling continuously. There is no other way for Y! Its corporate inefficiency and lack of vision leads to technical inefficiency. It is a mismanagement at all levels.
|IMO, combining Yahoo's great brand with Microsoft's distribution power via IE will create a strong #2 Google competitor (which we all want!) |
IMHO, MSFT is most interested in mail. Plus, huge advertising infrastructure is useful to them. I don't think, Microsoft is impressed for Y! search. Live search is coming up good. One important reason is MSFT purchasing Y! marks their competency (in fact domination) over open source; so this way they are excited to purchase it. And $44.6 billion is a very good, daring price for Y! mail, IM technology, its advertising platform, for its open source and brand ;- ) Leave search, Google is too much big in that and it shouldn't worry for MSFT+Y! search; it has better to look about Wikipedia.
|Lastly, there's the fact that search, for all its importance, is only 3-4% of worldwide advertising and 40-45% of online advertising. |
Yes, I think MSFT don't care about Y! search technology. Their interests are in its other things.
I 100% agree with increditBILL and gopi: Yahoo! outsourcing to Google would be bad for everyone.
i can't imagine why any internet marketer would want Yahoo! to do outsource to Google. Google would control 90% of paid search. they can charge anyone whatever they want, and obviously if people don't like it, what can they do?
i believe we need competition in paid search. msn-hoo would be a viable competitor to Google. i believe the future of internet marketing depends on this Yahoo!/MSN deal going thru.
|I 100% agree with increditBILL and gopi: Yahoo! outsourcing to Google would be bad for everyone. |
Just want to clarify that what is under discussion is the outsourcing of Search Advertising, not outsoucing search. ;)
Issues I see is:
- What becomes of the YPN network including premium publishers?
There are a lot of big name Internet sites allied with Yahoo.
- Cutting costs and saving money implies they will take down the overture infrastructure and fire everybody. That's analagous to cutting off a foot and a hand because it's going to affect Yahoo's independence and ability to make search based advertising deals with other websites.
There are other negatives as well.
|Yes, I think MSFT don't care about Y! search technology. Their interests are in its other things. |
I my eyes that would be several things:
Plus a pure boost in search market share.
Google is nervous because they know that MSFT has the ability to integrate (READ: Push) all of the various Yahoo portal services onto the desktop with a simple XP/Vista update.
Not-for-not, but I tend to use tools that integrate nicely on my desktop, and I would think most others do also.
Results 1 - 10 of about 37,100,000 from groups.yahoo.com. (0.10 seconds)
Results 1 - 10 of about 40,400,000 from finance.yahoo.com.
Results 1 - 10 of about 28,700,000 from answers.yahoo.com
Results 1 - 10 of about 14,900,000 from shopping.yahoo.com.
Results 1 - 10 of about 5,120,000 from dir.yahoo.com
Results 1 - 10 of about 7,810,000 from movies.yahoo.com
OR Results 1 - 10 of about 290,000,000 from yahoo.com
290,000,000 highly ranked and visited pages, not counting flickr, etc. Plus, their alibaba and Y! Japan investments. Can someone loan me $44 Billion ;)?
Outsourcing is too bad. What is the difference with surrendering to the arch enemy. Absolutely rubbish idea.
In 2003 Yahoo bought Overture for $1.6B, and Overture held some 60 search advertising patents.
Overture had already (in 2002) gone after Google for infringing the patents, primarily patent 6269361.
In 2004 Google gave Yahoo (who by now owned Overture) 2.7M shares (before the IPO) to settle the dispute - and Google got a licence to all the Overture patents.
So getting money from Google for paid search advertising isn't exactly a new strategy for Yahoo!
If Yahoo still held those 2.7M shares in Goog.... well - you do the maths....
[edited by: Chris_D at 12:33 am (utc) on Feb. 11, 2008]
|In 2003 Yahoo bought Overture for $1.6B, and Overture held some 60 search advertising patents. |
...and one of those patents is the "pay-per-click" patent, the function which earns Google 99% of their income.
Any question why MS wants this and Google does not want MS to have it?
Yahoo just announced that they are going forward with it.
Yahoo to run AdSense [marketwatch.com]
I can only applaud Yahoo!
It makes perfect sense: if you're faced with a hostile takeover, you make yourself as uninteresting as possible to the one trying to get you. Making some long term hard to break deals with the mortal enemy of your adversary seems like a very good strategy to become uninteresting for the adversary.
And if it brings in more money int he shor term (the only term your stock holders even care about) it might keep them happy a bit longer too.
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