The dust is settling on Microsoft’s $31 per share offer to acquire Yahoo, and the options left open to the company are fairly well understood at this point. There will almost certainly be no White Knight or other buyout offer coming to the table – the sorry state of the debt markets is assuring that.
Yahoo was hoping for a competing bid, any competing bid, if only to boost Microsoft’s offer to the $40 range. With no competing offer, Microsoft has no need to increase what they’ve put on the table. That means it’s decision time for the Yahoo board of directors.
They can take Microsoft’s offer. Or they can try to do a deal with Google to outsource their search advertising and boost cash flow. They can also do nothing, but that would likely result in a flurry of shareholder lawsuits for a breach of fiduciary duty. Doing nothing isn’t an option for Yahoo’s management and board.
As has been widely reported, Yahoo could increase its cash flow by an estimated 25% if it surrendered to Google and handed over its search advertising business. That could give them enough of an excuse to turn down Microsoft’s offer. To outsource search advertising to Google, though, would be a huge hit to Yahoo’s pride. It’s an implicit acknowledgment that the years of work that went into Yahoo’s Panama project to revamp their search advertising platform was not enough – they still can’t compete with Google.
Of course, the hit to Yahoo’s pride will be worse if they sell outright to Microsoft, the dreaded enemy of Silicon Valley.
It’s not clear that the DOJ would approve either deal, although on balance the Microsoft deal is probably more likely to create a competitive environment. Google could be a very dangerous company without any competition whatsoever in the search advertising space.
For its part, Google probably wishes Yahoo had put up a little more of a fight over the last couple of years and wasn’t in this position. They are making so much money in the current marketplace that anything that disrupts it is worrisome. Sure, getting Yahoo’s search business would be great – they take out a competitor and get more market share. But they would have to give Yahoo the lion’s share of gross revenue. And they are so dominant already that any further gains risks the attention of the U.S. and E.U. governments. A merger between Microsoft and Yahoo is a worse outcome, mostly because the sheer volume of searches and page views the combined company would control could actually produce a viable competitor.
The status quo suits Google just fine, which is of course why they are arguing for it. And this is where Google and Yahoo’s interests are suddenly in alignment. If for some reason the DOJ decides the Microsoft-Yahoo merger is a bad idea and gives it a thumbs down, then Yahoo can stay an independent entity (for now) and avoid those shareholder lawsuits (blame the government!). Meanwhile, Google can keep their money machine rolling.
Whatever happens, the salad days for Yahoo are long gone. 2008 will be the year Yahoo ceased to be one of the big independent Internet heavyweights. They’ll almost certainly become an operating subsidiary of Microsoft, or Google’s whipping boy. And if by some chance the government puts a stop to either deal, they’ll have a short reprieve before facing similar decisions next year or the year after. The world is an unforgiving place. Yahoo is cute, cuddly and likable, but they did not execute the way Google did. And because of that they are quickly turning into collateral damage in an epic war that is really just beginning between Microsoft and Google.
Yahoo pride? Anybody’s who’s worth anything at Yahoo! is now at Google or doing a startup. The rest spews out slow pages with broken HTML
http://validato...ine&group=0
It’s sad to see Yahoo go. One of my first web experiences was navigating to the Yahoo site and seeing their (at the time) revolutionary web directory. Still remember that moment. Good luck to everyone at Yahoo – hope it works out. You guys gave us a hell of a ride!
@1
Validators don’t mean anything. Google has more “errors” than Yahoo by that measurement.
Very nice article Michael. Very well written.
“Whatever happens, the salad days for Yahoo are long gone”.
Wonder how much influence * THIS * will have on them?
http://ycorpblo...80%99s-proposal
For heaven’s sake, please say NO to Mugro$oft, please.
C’mon then Mike, put your neckon the line and give us a prediction.
Will Yahoo take the $31 offer or sell off ads to Google?
Plus, when will they make the decision, today, tommorrow, next week?
The spies must have some idea of timescales to give an angle on this story. Which way and when would you put your money on this all happening?
Yahoo will take the msft offer. No other bidders will step up with a higher offer. Yahoo will not give in to Google.
F Google, MSFT and YHOO wil combine force and take on the next steps to take over Googles market share.
Get Ready
For me, Yahoo is also synonym of first web and webmail experience. They’ve done a lot for internet.
I just hope they’re not gonna be taken by Microsoft, because these guys doesn’t fit with the start-up way of doing business.
I wonder how regulators would have influence over an advertising deal done between Google and Yahoo. That is just a business decision where most regulators will stay far away from.
In the end it’s just a decision management has to make, do they want to be in the search business, go for Microsoft, do they want to be a content company go for the Google deal.
I question the prediction Balmer talks about for rise of advertising from 40 to 80 billion, that leaves out the recession which will certainly hurt advertising…
It’s amazing how little everyone acknowledges how many bloggers/analysts/journalists overlook Yahoo’s display inventory. It’s like 16x Google’s. They’ve made some interesting moves recently buying RightMedia, MyBlogLog, Flickr etc. Unfortunately, they just don’t own that 1 super revenue generator a la Google’s Search and Microsoft’s Office/Windows.
If someone can come up with a better option than the two above, they should take Sue Decker’s job right away and then run for Prez in 2012. Because I can’t see any other viable options. (How about Exxon as a white knight, they’ve got some extra cash?)
Should Microsoft succeed, I would wholeheartedly advocate that US Anti-trust and EU or Microsoft stockholders force Microsoft to split their OS/Application properties with their Internet/Media properties. As the Rolling Stones said “You can’t always get what you want, but if you try sometimes, you get what you need.”
Its bad to see a good innovator like Yahoo! to get offer like that by its own competitor. I hope Yahoo! will come out with the help of its other rival and its friendly duo led Google. Because after all it should not become a one man show in all fields, if one slumps among Microsoft and Google.
I’m so sick of the Google fanboys, and I don’t live in the valley so I’m not anti Microsft, Googles time int the spot light has lasted much longer than it should have and the’re way over valued as it is.
I don’t want Google to go away and I doubt that they would, they’ve raised the bar to search in a way that no one could have imagined, and it has created a better internet experience in that respect.
But enough is enough, the Yahoo deal will go thru and it’s time to move to the next wave of inovation that will come out of this merger.
I can just see all three board members reading your article and getting really pi$$ed at your (truthful) analysis. Its great sitting back and watching.
If Yahoo’s CFO is any good, there is already an anti-takeover plan in place. Within anti takeover strategies they could do a lot of things.
If they don’t have any poison pill or golden share type of arrangements already in place, their other immediate options beyond getting a more suitable buyer include selling the crown jewels of Yahoo that MS is after, including search.
They could also do a pac man, by making an offer for MS, but given their credit standing and credit markets, that won’t happen.
The more likely route is that the board will try to increase the offer through negotiations.
“Whatever happens, the salad days for Yahoo are long gone. 2008 will be the year Yahoo ceased to be one of the big independent Internet heavyweights. They’ll almost certainly become an operating subsidiary of Microsoft, or Google’s whipping boy.”
Why do you say this? That point of view seems irrational. Revenue is down but isn’t it still in the billions? Aren’t they still profitable like in the $hundreds of millions? And aren’t they STILL the #1 site despite Google and Microsoft efforts?
It seems like you are trying to say they will be bankrupt soon and the website will be shutting down soon. That point of view just seems irrational. The news of Yahoo’s death seems to be exaggerated and premature at best.
I think you should have a contest with your readers and/or the world and pose this question…instead of bashing yahoo all the time:
“I’m thinking of a website. It is the #1 portal, #1 web property by viewership, appears to have the most # of active email accounts, but it is not good at search. Search will generate so much cash that whoever masters it will have enough sway to threaten _any_ web based company. Besides shutting down the website, (the site is still very profitable in the $hundreds of millions) and besides joining google and microsoft, what should this website do?”
You have a lot of influence. And if you start to think positive, others will follow. I think a lot of positive ideas will come forth.
Look this is america. It just seems too negative and irrational to say that this giant can’t think of anything to do to survive and turn itself around. If two people in a garage can make things happen, surely a company that is #1 and still profitable and has a couple of billion in cash…has at least a fighting chance, don’t you think so?
Yahoo was a great innovator in the early days of the internet, no doubt. I remember when they started offering “personal” web sites – my family site (as awful as it was compared to today’s standards) was among the first 5 listed.
However, at this point I can’t remember the last time I used that site for a web search. And I had to stop using Yahoo email because of the large amounts of easily identifiable spam that was showing up unfiltered in my inbox every day.
Yahoo was ambitious, but Google more so.
Either way, still good for the Yahoo shareholders. That said, Yahoo’s outsourcing their search to Google was the killer mistake. In any case, unfortunate.
Beautiful:
“…collateral damage in an epic war that is really just beginning between Microsoft and Google”
Love it!
Can anyone explain to me this:
Why don’t they invest some serious money (instead of buying useless companies) into worldwide advertising? Means: Yahoo Publishers – Not for USA only (it’s been on “beta” or whatever it is for months or years…), so they would make more money. This would also allow advertisers to buy some international traffic (if they would allow that, again, not USA, Can, Aus, UK only… or so).
Yahoo Finance Charts are in beta for 6 months or more… They are dieing because they are slow.
Off-topic: how to get approved by doublelick so I would show their ads on my sites?
Michael-
I’m surprised that you’re describing a deal with Google as a viable option. It’s not. Unless I’m missing something, Google ad integration would amount to a one-time bump in Yahoo’s operating revenues. It would do nothing to address the broader host problems behind the company’s decline. A Google deal would mark the first of many steps needed to improve the bottom line and unleash shareholder value.. If Yahoo becomes nothing more than a bunch of web properties, an Interactive Corp-style break up of the company needs to follow. Imagine Yahoo devoured by many separate players- a scenario that’s even more distasteful to the Yahoo faithful.
But all of this is irrelevant, because any decision by the board to decline a takeover bid representing a 60% premium on the company’s stock price would result in a stream of shareholder lawsuits. As Microsoft gladly pointed out, Yahoo talked its way out of a possible merger last year by presenting a credible comeback plan. Given the plan’s clear failure, that type of talk won’t fly a second time. Unless Yahoo can find another opportunity to dramatically change its prospects through a major partnership or alternative merger, the Microsoft deal is inevitable.
Outsourcing to Google would be a bad bad move…dont get me wrong i feel your sentimentality towards Yahoo! being sold to enemy number 1, microsoft. But Yahoo! outsourcing to Google?.. it will be bad news for the industry. No competition. Dead. Whatever Google decide or say rules..publishers, advertisers and consumers will suffer in the end. So put your sentiments away and think whats right for industry. Competition is good, everybody wins. So let Microsoft get Yahoo!
I don’t understand all the “There can be only two” talk. I don’t see how that is a good thing in any industry. I could not care less if ads on sites come from 2 vendors or 3 or 80 but I do care about having a rich ecosystem that includes sites like Flickr and de.licio.us.
There isn’t a single MS web property that I visit compared to many Yahoo sites I find useful. Combined with the wildly different cultures and platforms, I don’t see how this merger will help anything for us, the users. I think in a year or two we would just see MS with an ad share that is less than the old combination figure and all the former Yahoo properties dead or in deep decline.
There will also be less development by small innovators as the Google/MS/Yahoo buyout exit strategy/hope shrinks.
“I think in a year or two we would just see MS with an ad share that is less than the old combination figure and all the former Yahoo properties dead or in deep decline.”
I couldn’t have said that better.
Probably Yahoo does not go either side. they stay as an independent company…
Another option is for Yahoo! to acquire AOL from Time Warner — which would give Yahoo! even more of the web’s eyeballs, and create a powerhouse for display/behavioral advertising. They lost at search advertising, but they could dominate with display/behavioral advertising with AOL. More analysis: http://stevepol...ft-in-the-face/
Mr. Michael Arrington, while it is sad that TechCrunch has lost a few writers, secretly I am happy to see your write more. I think you have an unbelievable ability to bring words to life.
I really favor a Yahoo! buyout if Yahoo! can still retain it brand.
If Microsoft can own Yahoo! the way Toyota owns Lexus, I think it will be awesome for everyone.
Microsoft needs to kill its own search business and its web based software business and let Yahoo! lead them as an independent company. This would mean cannibalizing its own business but the alternatives are far worse.
If Microsoft kills the Yahoo! brand then I think its a sad day.
In any case, Yahoo! has few alternatives these days. I don’t see how Yahoo! can survive without some compromise.
-Augustus
Michael, that last paragraph is a stunning reminder that walled gardens don’t work in an era of distributed media. It’s beautifully written. Thank you.
Michael,
I disagree that the DOJ won’t approve the Microsoft-Yahoo! deal.
Great piece, beautifully written.
” Microsoft, the dreaded enemy of Silicon Valley. ”
Umm.. dreaded enemy of the 80’s maybe. Microsoft has not delivered a single product that competes with startups since Internet Explorer. Google is the dreaded enemy of Silicon Valley… when they launch a product in your space.. you’re toast. Can’t compete with free.
great article, i still would like Yahoo to remain independent but it looks like the MS takeover is inevitable.
Mike: great post. Love the war reference. I agree with you that Silicon Valley will be a war zone with collateral damage. The rats are already leaving the ship as predicted by Josh Kopelmans post today…
The Microsoft invasion is happening and Google isn’t Netscape. Google is executing. It will certainly be epic.
http://furrier....the-comparison/
sorry, i’m not sure i get why no other white knight would step in.
aren’t the Yahoo assets in Japan / China a great floor for any optimistic hedge fund to try and go after? why wouldn’t someone try and take Yahoo private, then sell off the good pieces to Microsoft et al?
the Microsoft per-share offer isn’t bad for shareholders, but at the same time it’s not totally out of the ballpark for someone else to go after, given the value of the underlying assets.
maybe you’re right the timing / debt markets are tight, but still seems like a TON of value to go after there, and not just cede to MS.
the 800 lb gorilla is not microsoft…. it’s google!!
google is getting way too powerful and manipulates search results so it’s properties show up preferentially. case in point all the youtube videos showing up as universal search. where are the yahoo, blip.tv videos??? and now it will do the same with knoll. who’d you think is going to show up first for knol. not squidoo, not hubpages, not even wikipedia
google is already having physicians in SF build some pages for 1 -2 k a pop on topics such as “hypertension” which google is telling the authors they can make 150k off of a year. And you want to know why? that’s right they own the search engine and will show their pages over others. and you really think that knoll will be in the sandbox??? not a chance….
a combined yahoo microsoft alliance is great for customers. lets face it yahoo is going nowhere, and with Balmer driving this he’s after Google’s lunch money.. Great cause google needs a little humble pie. and personally yahoo microsoflt will be a great alternative to adsense and adwords.
For all of you making a case for poison pill and the like, that doesn’t solve the fundamental problem of maximizing shareholder value, which the Yahoo! BoD and execs are responsible for doing.
Yahoo! will fall to Microsoft. Like it or not, you will have to live with it.
Giving into Google is just plain silly. Can you imagine handing over the entire responsibility of generating revenue to your competitor?
Microsoft will take out Yahoo! and will also destroy any other tertiary ad-network employing a PPC business model.
Great analysis! I’m loving every minute of the Google/Microsoft war. Looking forward to continuing coverage.
Articles like this are why I still read TechCrunch.
Mmm..i think that Yahoo continue to be indipendent and alone, without MSFT..
Completely agree with this post. Yahoo stopped innovating, and started imitating. Google pushed to get the best and brightest minds, and is seen as a giant innovation thinktank. While they still have traffic, Yahoo is yesterday’s internet golden child.
Could they have turned it around? Sure. But the Microsoft offer may be a sign that its simply too late.
Everybody calm down, now.
Folks on the inside had a creeping feeling well before this debacle that something was amiss at the Big Purple. It’s a quote in my article, which I wont link to here, but you know how to get there.
I really wanted to dig deeper at that one quote, ‘…long before the layoffs, long before the MS buy, things were not right, the shakeup started long before these upheavals”.
But it was late. Point is, forget the buyer, there was a worm eating its way through Yahoo’s heart, starting around Semel’s time.
As others have said, Google is the “Microsoft” of the 2000s. They are “open” and “cooperative” only in spaces where they have failed. Yahoo has some great products and worker bees (still). Even though I moved my mail to Yahoo once Hotmail was acquired by MS, I still think a merging with MS is the lessor of two evils (vs. giving search $$s to Google). Google can’t be trusted.
Yahoo selling to Microshit will be a bad move. While MS is working on a few cool things like the photosynth, they are focussed on competiting with google.
Google is no doubt competing with MS, but through innovation rather than builing some cheapass stuff like adcenter or the ever-crappy live search.
The biggest takeaway from Google is staying focused on core strength and build innovative tools around it. Let MS or yahoo play the catch up game.
Thats already costed yahoo a lot and same will happen to MS. Give up in search. Focus on areas where you are better than google and let google do the catch up.
But I am also scared of Yahoo- google tieup. Instant relief, but temporary solution and way too much going in google’s kitty
Jeff Weiner and Sue Decker, no shortage of ego, paucity of operating skill.
The insiders saw this years ago.
Yahoo will never dissipear if Microsoft buys them. It will just be a seperate operating entity under Microsofts’ wing, but nothing will really change.
YAHOO! is an elite name in the industry… but they did just sit on their asses for a long time… Microsoft the TSUNAMI of yesterday and GOOGLE is ahead of them all today…
YAHOO sell out means the disapear of the brand and the domination of MS over it… and YAHOO! GOOGLE deal means lot of more money to the GIANT!
what is next?
Is there any1 watching out ??
hard decision for yahoo to do… but whatever it was… this offer brought back their name to the news big time!
regards,
ghalo
http://www.jean.ghalo.com
I wanted to let you know about what happened to me working at Yahoo! Inc in Hillsboro oregon. My story deserves to be told i think as Yahoo! was unfair in their hiring practices. I was promised full time employment with the company at MOST after 90 days of employment which is typical for most contract to hire positions. I left a job making over $5.00 an hour more to come work for Yahoo! and they were aware of my situation and the promise of full time employment was not kept. Its Yahoo!’s decisions like these that contribute to their downfall.
Below is a copy of an email sent to Jerry Yang and staff concerning my departure of Yahoo!.
———- Forwarded message ———-
From: Mark Hannah II
Date: Feb 5, 2008 9:24 AM
Subject: A disgruntled Connected Life T3 Agent that just quit
To: jerry
Hello Jerry,
Sorry to bother you, and I apologize for troubling you with this, but I felt my story needed to be heard by someone who holds Yahoo! as close to their heart as I imagine I do.
My name is Mark Hannah and I, up until yesterday, worked for the Tier 3 Broadband Connect Life Support Team in Hillsboro Oregon. This Team is managed by Ted Yuzon.
Yesterday, I quit. I started working for Yahoo! through Workforce Logic in Sept of 07. I was previously working for another company in Vancouver Washington, making about $5.00 more an hour than the $11.50 I was making working for Yahoo!/WFL. My resume was referred to Yahoo! and Ted Yuzon through a friend of mine, Jonathan Gray.
I was excited about coming to work for Yahoo! as my personal Yahoo! ID, Nevermore781, has been active since 1999. I even met my girlfriend through Yahoo! Chat over 7 years ago, so Yahoo! is very near and dear to my heart and I write this email now with the utmost contempt for what happened to me.
When I was first told about this job, my friend, Jon had told me about his experience. How he had been rolled to perm employment with Yahoo! in less than 90 days and they had a position open as the last person had moved on to another position within the company. I decided to give him my resume and have him drop my name to the manager in the hopes I could get perm employment with Yahoo!. They were interested in me and my skills based on my resume and I was brought in for an interview. I explained to both Ted and Nick my team lead when I was interviewed about my situation. The pay cut I was taking. I explained to them I was interested in the position based on what I had heard from Jon about being rolled over before 90 days and was told that I would more than likely be rolled over before 90 days if not at 90 days.
Now as I stated previously, I left a job paying me 5 dollars more an hour. I wasn’t happy at the job making more money, it was about an hour drive each way to and from work, and there wasn’t much room for growth from my position and Yahoo! Hillsboro being only about 10 minutes away, well I did the math and I figured as soon as I was rolled over to perm, the dollar difference wouldn’t be much anymore due to the time and gas savings, plus, its Yahoo!. As I said previously, Yahoo! was already near and dear to my heart, so the opportunity to work there was just amazing to me.
So I put in my 2 weeks at my previous employer and started working for Yahoo! on Sept 3rd after passing the background check. Everything was great. I loved the position and I took to it quickly. If you check the performance for the team since I started, you will see exactly how quickly. I was told by my manager that I was “raising the bar” and was complimented on my end of day reports so frequently that other team members were getting offended by the way this performance was singled out by Ted Yuzon.
My end of month totals for YCAMS tickets processed for January alone eclipsed the rest of the team by over double. If memory serves me, I was over 200 tickets ahead of the next closest agent with the same level of access to tools and systems. I don’t quite remember exactly the data from December and previous months, but I’m sure my performance and numbers for previous months put me in either 1st or 2nd position for each month. I had good QA’s and good CareSATs on my tickets too. Please Check! I think you’ll find the numbers interesting.
I’m stating the numbers for fact, not to brag about them. The members of this team are amazing. The team lead is probably the best direct supervisor I have ever had, so I don’t mean to make to make the numbers sound as if they did anything wrong. Basically, the numbers only contribute to my frustration with this situation.
September goes by, and by the end of November, I start feeling the $5.00 difference in my bank account pretty hard. I told this to Ted, and he explained to me about the hiring freeze and how they’d like to roll me over but the hiring freeze and they had no firm date as to when it would be lifted. Since there was no way to get hired at the time, I asked if there would be any way to increase my pay through Workforce Logic. Ted asked the powers that be and was told that the paperwork for getting a pay increase through WFL would be just as long of a process as waiting for the freeze to end would be.
December comes and I am literally praying that the freeze ends so I can be rolled perm. I wrote an email detailing my situation to Ted and I believe he did forward my concerns on to his boss. I had to move back in with my parents to be able to afford my bills on the $11.50 an hour I was getting paid, so you can probably imagine the strain put on me through that alone.
January comes, I keep asking and dropping comments about when is the freeze going to be over and how bad I need to be rolled over. Pleading. I asked my manager time and time again for information and “no news” was the answer I was given most of the time. I was kept in the dark about what was going on.
So Yesterday, I contacted Workforce Logic to try and see if they had any information as to when the freeze would end, hoping they may know something or have more information than “no news”, but unfortunately, they didn’t. That was my limit and I quit. It’s not what I wanted. I don’t like it. I am not happy about it at all.
I wanted Yahoo! to be the place where I made a career and not just another job. I owed Yahoo! a lot I felt. I wanted to make a difference within the company, and now, I am so distressed over this, and I feel like deleting my account and never having anything to do with Yahoo! again.
Again I apologize for having to bother you with this, I just felt like you deserved to know what happened to an ex-Yahoo!
Thank for your time,
Mark Hannah II
Michael – this is undoubtedly one of the best analysis’ I’ve read on the matter. I am for, after all the dust clears, and stockholder pockets are filled, whatever is going to offer greater benefit to the consumer and a fairer playing field for the competition.