I don’t believe that there is anything Yahoo could do at this point to further destroy their business that would surprise me.
At 1:35 pm EST yesterday we posted that we believed Yahoo would announce a search marketing deal with Google, essentially ending their negotiations with Microsoft and, pending government approval, sealing Google’s monopoly position in search marketing. Twenty-five minutes later a massive sell off of Yahoo stock began – the company lost billions in market valuation over the course of the next hour as the market made it’s bets on the news.
At 3 pm EST Yahoo announced that all talks with Microsoft were formally off, and the stock fell further. It eventually climbed back a little, but by the end of the trading day, $3.6 billion had been removed from the pockets of Yahoo stockholders. Well after trading ended, Yahoo confirmed our original report that they’d signed a deal with Google to hand over much of their search marketing business.
The deal terms announced with Google appear to be fairly innocent – a non-exclusive arrangement that let’s Yahoo take Google’s ads if and when they choose to, and put them alongside their own ads, and/or other third party ads. But the truth is that this will cause even more advertisers to flee Yahoo’s platform. Which will drive auction-determined ad rates down. Which will drive Yahoo to take more Google ads. Which will…
It’s a vicious cycle and they will have no choice, as a public company, but to rely more and more on Google as time goes on.
Our sources inside Yahoo had interesting things to say about the general state of things at the office today as Yahoo’s stock price fall apart. “Unclear what’s happening” said one vice president. “Fucking train wreck, total chaos” was the less eloquent observation of a more junior employee.
When I accused Yahoo of playing the crazy card in their negotiations with Microsoft, I never thought these people were actually insane. Handing Google a monopoly in search marketing was just a ploy, I thought. A way to get Microsoft to bid a little higher than $31 per share.
But it turns out I was wrong. Yahoo’s hatred of Microsoft runs so deep that they were actually, in the end, willing to destroy the future of their company just to keep it independent for a short while longer. They’ve ignored the wishes of their shareholders, employees and many now former key employees in killing that deal. And apart from Google, CEO Jerry Yang, President Sue Decker and possibly Tim O’Reilly, I don’t believe there is anyone in the world that is happy with what has happened.
As much as everyone still has lingering doubts about Microsoft after their hardball monopolistic practices of the nineties, it’s clear that they, along with Yahoo, were the only force counterbalancing the massive presence of Google in search marketing.
Without them, Google would continue to keep the lion’s share of search marketing dollars to themselves, and distribute next to nothing to third party publishers. But Microsoft and Yahoo were both willing to fight for some of those deals, at least pushing Google’s profits down a little. Now, with Yahoo taken out of the game, it’s unclear that Microsoft can fight Google on its own. How long will they pour profits from Windows and Office into trying to compete in search?
The delicate power balance among the big players was disrupted today in a big way, and the consequences will be felt over the coming months and years. We needed a competitive market in search to ensure the health of the Internet. Now, it’s nearly impossible to see how that can happen.
It took me about five minutes of watching Yahoo’s top two executives talk last month to realize that they had no fight left in them. The fact that they simply gave up wouldn’t matter so much if the only people hurt by their actions were their employees and stockholders. But that just isn’t the case, and now we all have to deal with the fallout.
And the lamb layeth before the lion. Stupid Yahoo!
Semel was not a great new tech leader but he NEVER would have given up the company like this.
By the way Mike, that headline is the best I have EVER seen ANYWHERE.
I suppose it’s irrelevant, but you should probably add “a boatload of Yahoo!’s customers” to the list of people who never wanted a merger. The unspoken plain truth of this crap idea of a merger was always that the products would suffer – and despite the internet zeitgeist of the moment, Yahoo! has solid products, and many are far superior to Microsoft’s.
Never mind that many of these “shareholders” were anything but – options, shorts, and newcomers. I, for one, have owned Yahoo! stock the whole time and never wanted to see such a good company in Microsoft’s hands. Maybe Yang’s lost the plot, but no one ever made a convincing argument Balmer had a plot, and until someone can really do something interesting with Yahoo!, I suspect I speak for the vast majority of its customers would prefer the status quo over a Microsoft deal. And while customers aren’t analysts, shareholders, employees or pundits, they are not irrelevant.
Also, search is not the whole world dude. The heat’s growing in Display, which Yahoo! still trumps Google in. Seems like a smart move to me here – when Google ads make more money for you, run them. Yahoo! finally makes something better, then run those. The whole while you keep your robust, awesome toolset intact (because aside from search and maps, Yahoo!’s are highly competitive to Google’s), and optimize ad revenue from the high-CPM display and custom-ad side. Maybe it won’t change the world but it’s not an idiot business plan and is as solid as most I’ve seen of late.
The stock market goes up and down all the time, and it usually always happens after news like this. Like, after Steve announced the 3G iPhone, stocks went up, if he hadn’t announced it, stocks would have dropped like a tonne of bricks. Would it mean Apple is about to die? Nope. Does this mean Yahoo! is about to die? Nope – its not a good thing, but long term its not going to be seriously bad for the company.
Michael, doesn’t this deal make Yahoo! a CNET with games now?
What is good for owners may not be good for Share Holders? Then whose wealth to Maximise.
http://tekno-wo...ld.blogspot.com
Small points
1) Yahoo has a lot of R&D in the works, and maybe they DO know something more about ads than they can share immediately with shareholders
2) The share should have plunged when the MS deal was off, not when the Google deal was announced — cos that is revenue positive and otherwise neutral.
3) Are you telling us there is no space at all for one, good, glean Internet media portal? (Can’t think of any other except Yahoo with a global reach…which Yahoo has not exploited enough)
4) There is a whole lot of ad revenue that can be plumbed from e-mail and a lot many sub-brand media sites that Yahoo can create.
Story ain’t over, boss — oh yes, Yahoo could do with a non-geek boss, the way uncle Schmidt has shaped Google. But, by no long shot is that a case for MS. What does Steve Ballmer know that could make him pull the trick? If that is not clear, why should you seek clarity on Yahoo?
Over and out.
I’m not worried about the state of search on the internet. In Google we trust.
Having fun using sensationalism to whip up a frenzy about the stock price, are we?
Apologies for the typo..it should read “good, clean Internet media portal?”…in the comment above
Could not have said it better than @rick_webb
I’m really beginning to get pissed with this over-emphasis on what the stockholders want, to the detriment of the people actually user the services (speaking as a developer).
Selling to Microsoft is a losing proposition, they don’t have a plan.
Its best for Yahoo to remain independent and try to hire some people to come up with a good monetization plan, while also cutting back on some of the “design by committee” people that they have. And that’s speaking for stockholders.
From what I’ve heard, the problem seems to be top heavy managers. Google will have the same problem in not too many years hence too, as they are leaning towards managing everything to death.
Speaking of managing stuff to death, that’s why Microsoft has not done anything innovative in the last 10 years.
Michael, it seems to be wishful thinking to think that Microsoft would have been buying Yahoo for its staff in any major way, except for its ad unit on a temporary basis. And to call shareholders “bankrupt” after a two-point drop in stock seems to be a little dramatic. It seems to me if I am a shareholder in a company that just got a virtual guarantee of more revenue with less expense I’d be pretty happy soon enough. Given the growth in online advertising in general I doubt that people displaced from Yahoo’s ad unit will feel much pain at all for very long. Many of them no doubt will wind up working for Microsoft anyway, no doubt. I have no intention of being cold-hearted about this, but I am not seeing much but crocodile tears here. It’s better to have the three major outlets for online content, each with their own particular strengths, owned by three companies rather than two. I don’t see much way around that logic at this point.
Yes Michael, you were wrong, like Icahn and many, many others who know virtually nothing about engineering. Yahoo is a very complex product company.
Because people like you and Icahn don’t write code, you don’t know how to create usable products, you don’t begin to know what it means to produce code that delivers value. Your own web site is Wordpress.
Icahn harped on about the “severance plan”. Why? Because everything else about Yahoo is incomprehensible to him.
Frankly, someone should have pointed this out a long time ago. You finance, legal and accounting people are lame compared to the technical brains at places like Yahoo, Google and long ago Microsoft. So the Yahoo people don’t want to work at Microsoft. That’s simple. They don’t respect the sh*t Microsoft engineers write. Do you blame them? To Yahoo engineers, money is not everything, the code is. This the likes of Icahn cannot comprehend.
That doesn’t mean Yang is doing things right at Yahoo. But I would venture there is no one right now who could do it better. Certainly not Balmer. Yahoo is a complex company with complex products in a quickly changing market.
Yes Michael, you and many others were wrong.
hi mike,
its easy to conclude the conclusion you made but what jerry has done is may be bought some time to explore more options – he never got to run the company the way he wants – this is the first time that he is really running the company – though with a huge risk but you never know – this deal is like selling search business to google rather than to microsoft in such a way that he can take back his search business w/o giving away any extra money – this is like selling your business on temporary basis – also there was no guarantee of success of search business under msft – neither we knew how much msft was ready to offer to buy yahoo’s search business, may $1B every year is much more profitable than what msft was offering to buy its search business – i think yahoo has made smartest and safest move, its not a short-term decision where u take money and run – this is a long term move – may be after making billions in next couple years the time would be rip to sell its search business to whoever who can offer more than what msft is offering right now OR may be they will develop their own platform to deliver display ads more efficiently of various media outlet including on cell phones.
It’s basically all upside for Google and some short term cash for Yahoo. Their top executives are jumping ship as fast as they can and the company is in disarray.
What a mess.
I think Yahoo was correct in being wary regarding the Microsoft deal. Even though the market seems to think this is a great partner ship the future of this deal is dubious at best. Google will continue to reap the lion’s share of the search and ad market and Even with a Yahoo/Microsoft deal you’d be looking at a combined market share of around 35% (?) where Google is doing double that. With Microsoft’s serch/ad business perched on the edge of the toilet, it’s not clear that the merger would not prevent them both from going down the tubes eventually anyway. Shareholders are crying over the spilled milk of lost temporary profits. However, in the long run, it’s not clear how this would have turned out.
For Yang, I imagine he still sees Yahoo as a viable business based around a strong loyal community of users and the Google deal allows the company to continue intact.
Mike, you’re thinking from only one point of view (money, money, money) – you forgot that there are 3 important stakeholder (employee, endusers and share holders) – you’re only thinking about shareholders and not other 2 – may be you have no clue how loyal the endusers and employees are to yahoo – shareholders are the least loyal people and why the hell jerry should worry about them anyway … he better be loyal to the people who are more loyal to him …
secondly yahoo is only selling its search business for north-america – he’s doing this to test the market and its result – let me tell you one thing, the biggest search market of the near future will be BRIC markets (Brazil, Russia, India and China) – may be jerry will develop a fantastic platform that can make money more in this market than what it will make in north america (with the help of google) – may be he’s just playing a smart game where he will take his intelligent people off north-american team and make them to find the solution for the rest of world …. what i mean to say is north american market is way too small market in terms of future earnings – so why not make money right now with the help of google and in the mean time try to capture other market with your proprietary tools such as Panama – at the end of the day you have to see where world is going in next decade or two – and if i can see that this century is the century on Asia then Jerry Yang who is from asian background should also know this very well.
What’s the big deal? Google was always going to consolidate search anyway. A MSFT/YHOO combo was powerless against Google. So this deal is just accepting the inevitable.
Yahoo made lots of bad biz decisions in the past. One of the worst was the Overture Acquisition, that’s why they were so desperate to launch the Panama Project to fix its ad system. It seems they gave it up… by giving the virtual monopoly to Google, Y! is saying there are no more way outs. RIP Yahoo.
Hey Mike,
How about posting an expose on the board members of this disaster? I realize that the executives are insane, but what gives with the adult leadership on the board? They hired and let Semel shut down the main engines at 50,000 feet. Sure Yang and decker piloted the plane into the ground, but who cleared them to land anyway?
Who are they (including “what’s his name” the chairman)? What are their other successes (or failures) and why in the world were they qualified to run a company? How a rare moment of holding their feet to the fire, too?
I may be mistaken, but doesn’t one of them run an airline?!?!?
Mr Arrington needs to get a clue or perhaps a basic lecture on finance before opening his piehole on a subject he understands nothing about. The economy has been sliding at a gigantic scale and global stocks are down multitudes of more than the $3 Yahoo! lost.
Comparing today’s stock to a value of the stock in a three month old market without keeping the market value at had is like saying I bought a ford t for 500 dollars in 1914 and not it costs $69999. Run inflation sky is falling.
@67
would be cool
This is the right time to buy YHOO
It will bounce back and make me a million bucks
Thanks a-ring-tone for making me rich!
Btw, M$ sucks so much it is even funny anymore and now without any search strategy they suck even worse
You are totally off the mark. Yahoo! doesn’t need the money from this to be a going concern. They are in fine financial shape. This deal gives Yahoo! the chance to turn juice their results when they need to to fend off the likes of Icahn. I believe that you’ll see the Google ads displayed less and less once Icahn is gone. They have solid ad technology which as you correctly point out is their future.
Unfortunately Icahn is a disturbance, (like an annoying fly) who needs to be shooed away. The Google deal is the bug spray.
Don’t be so grim about this. Yahoo still dominates display advertising.
God save the Internet!!! Please.
If all we have is Google, our lives will be in perpetual Beta with colored balls bouncing in the streets, and 20 yr old pimple baring uber attitudes!!
Help…someone.
@67: the BORG is inevitable. Why resist? So was AT&T I believe back in the day. And we have some wonderful experiences today as a result. Not!
And google wants to be a utility. Think net neutrality (ie they get a free ride on our backs).
@74…
Dominates…sure, if you look at it from a single property POV.
Look at it from a competitive landscape POV and you’ll realize networks already have their straw in the Yahoo’s milkshake.
I agree with Mike. Aside from the absolute f.u. to their own shareholders and employees, Yahoo’s senior execs/board have done a major disservice to the entire industry. This will be looked back on as one of the saddest days in the history of our young industry. Now, all us little guys are even more beholden to Google than before.
If antitrust authorities do their job, these deal should be blocked, as it just creates a monopoly in search ads.
Indeed Yahoo is shooting in their own feet. Whether the deal is approved or not, Yahoo has told the market they have given up and surrender on online ads.
Today Yahoo is more of an acquisition target than it was yesterday, and I am afraid the price will be under $33 a share.
Incredible, the yhoo fools, do they have a plan to get to $33 where
it should have been today ? As an investor I am pissed.
I am not selling yet, but not buying either.
The buy signal will be upon any sign of a management change
Michael,
I pray that Yahoo will have an strong upturn so that I can simply utter the chant “yet another fuckwit journo who went with the hype and got it wrong”.
Yours,
George.
Both sides (Google and MS) are basically resorting to unfair practices. MS says Search ads are ineffective (… only because Google dominates that space) , while Google says Display Ads are ineffective ( … only because MS dominates that space). But the truth of the matter is that both are building their arsenals in these areas by in-house research and technology and acquisitions. Its highly disappointing to see that the giants of the Internet age are setting bad examples, by false claims and research – and playing unfair. Well the whole Social Media “sharing” phenomena is basically screwed up as far as copyrights go. So, this whole “new” dot com 2.0 or call it what you may – is founded on a ill-footing and everyone is joining the party to make money off the unpluggable loopholes. Have a nice day.
interesting to read this post accompanied by two yahoo banner ads trolling for developers…
My favorite part of this entire soap opera is where Yang & gang go *back* to Microsoft to discuss their $33/share offer. Brilliant negotiating tactics…NOT!
Lots of comments here about “Yahoo is just fine, this is no big deal.” Stock is tanking, core competencies are being outsourced, key employees are leaving in droves. Yahoo is *not* fine. They are now, for all intents and purposes, an also-ran that is increasingly irrelevant.
Lots of comments here about “at least Microsoft didn’t get them” and “I’ll take a Google monopoly over MS anyday”. Welcome to your Google monopoly, whether you want it or not.
Terry Semel and his gang F*&#ed this company. I think, Ichan should have gone after him 2-3 years ago! If Terry wasn’t such a sleazy shitster, yahoo would have owned facebook now.
I agree with a lot of your points Michael but “massive destruction of shareholder value” is quite an overstatement – right now. I agree with the other posters who question your use of financial terminolgy that you obviously have no clue about.
To those who say that Yahoo can use the short term cash boost Google provides to fund R&D – get real. Yahoo has spent years trying to get its act together. Everything big it has tried has failed. Just look at Panama. Now that employees are leaving and the sanity of leadership is being questioned there is no way Yahoo can execute on a turnaround.
Yahoo is the Titanic and it just hit an iceberg. Shareholders should start looking for the life rafts. It might take a while to sink but this baby is heading to the bottom of the ocean.
I am closing all my yahoo related email accounts. This company is screwed up, the only thing I use of theirs is the email. I have no reason to use anything this company puts out but this stupid yahoo email account. This will end any interaction I have had with Yahoo.
WHAT A BUNCH OF STUPID FUCKING LOSERS @ YAHOO
I think Mike means EDT.
“And apart from Google, CEO Jerry Yang, President Sue Decker and possibly Tim O’Reilly, I don’t believe there is anyone in the world that is happy with what has happened.”
Was that a rhetoretical question because I for one am happy that Microsoft did not get they greasy little paws on Yahoo.
May Google continue to compete with Microsoft.
Excellent write up, Michael.
Thanks
Beginning of the end for Yahoo? It is beyond me why the media keeps suggesting Yahoo and Google are in the same business and that search is everything. Google does one thing well. The majority of their prodcuts are worthless. Yahoo is a content portal. It has the number one site for Finance and Sports (by traffic) and the top email. They also lead the industry in display advertising, which is significantly more important/useful for marketers. Search ads…seriously, who is really clicking on this. If Microsofts CPA model catches fire, advertisers will revolt against the fraudable CPC model of Google.
Surely Yahoo is going to only farm out the low profit search terms to Google to maxmize revenue. Yahoo is using Google as a tool because thats all they are. Beyond all of that…why is there not more discussion on Google diversification. Everything it does that provides revenue is tied to search. Thats great when you have the best search, but there has been plenty of articles outlining how the industry can be improved and if Google cannot figure it out, the house of cards falls down.
At the risk of getting hammered, I hear/read all this talk about Google having a monopoly. I don’t get it. My understanding of the definition of a monopoly is this:
A market structure characterized by a single seller of a well-defined commodity for which there are no good substitutes and by high barriers to the entry of other firms into the market for that commodity.
That definition is from West Virginia University’s website. No good substitutes? There are a ton of good substitutes for search. High barriers to entry? There are virtually no barriers to entry.
Anyone care to tell me why I’m an idiot and don’t see it? Thanks.
Wow, Arrington really thinks his diddly post single-handedly made Yahoo’s stock crash before the MS news hi0t?? Wow Arrington, a new ego high even for you.
Too much wristing yourself?
‘Keep your friends close and your enemies closer”
This is not a death deal, its actually quite smart for Yahoo. They control what keywords and sites Goog serves on and take a piece. The advertisers will still buy on Yahoo as well as through Google – yes that is the way it works.
So there is no downside here – Yahoo is MUCH MUCH better at display advertising than Google and I can only guess how they are going to leverage their RightMedia exchange (#1 ad exchange) and their Right Media ad server clients to grow their display business.
My take is that PPC search has peaked – the amount of click fraud and customer panic is killing ROI.
dp81 – I completely agree. The media is in a frenzy on this deal and they all seem to miss the fact that Yahoo is not a search engine and Google is not a content company.
This is just typical of Wall St analysts who have no real comprehension of the business they report on…
I am long on Yahoo – This was a smart move and will work out well for them moving forward.
ya I think Mike means EDT.
I don’t necessarily doubt you, but how do you justify this claim?
“Without them, Google would continue to … distribute next to nothing to third party publishers”
I am under the impression that the dollars work out differently. GOOG announced financial results for Q1 of 2008. AdSense revenue was $1.69B. Traffic acquisition costs (TAC) paid to AdSense partners was $1.34B. So GOOG keeps about 20%. If average CPC is $0.50, GOOG’s gross profit of $0.10 per AdSense click.
What gives?
Are you trying to become the Bill O Reilly of the web – what a load of hyperbole. Shareholders are sheep and get sheared with great regularity these days. The only thing new here is your ranting. More opinion less O’Reilly like behavior
If people bought stock after MS announced their pursuit of Y! and are still hanging on to that stock too bad for them. They were expecting dollars from M&A activity when they should have focused on what the company is really worth – which is what it was before MS proposed plus a few bucks for the real dollars they are squeezing out of Google
To Yahoo’s Board of Directors:
Roy Bostock
Chairman, Yahoo! Inc.
Chairman, Northwest Airlines Corporation
Chairman, The Partnership for a Drug-Free America
Eric Hippeau
Managing Partner, SOFTBANK Capital
Arthur Kern
Investor
Chairman, American Media Management, Inc.
Maggie Wilderotter
Chairman and Chief Executive Officer, Citizens Communications Company
Jerry Yang
CEO and Chief Yahoo
Ron Burkle
Founder and Managing Partner, The Yucaipa Companies
Vyomesh Joshi
Executive Vice President, Imaging and Printing Group, Hewlett-Packard Company
Robert Kotick
Chairman and Chief Executive Officer of Activision, Inc.
Gary Wilson
Private Investor
He was Chairman of the Board of Northwest Airlines Corporation from 1997 to 2007
How can you issue a press release saying:
“Yahoo! to Strengthen Competitive Position in Online Advertising Through Non-Exclusive Agreement With Google” ?
http://yhoo.cli...eleaseID=316450
Google is your biggest competitor.
Yang = Mcnealy = Ellison = Noorda = so on and so on
Hating Microsoft is more important than any of the following:
1) Customers
2) Shareholder Value
3) Employee Morale
These ego-centric narccisistic leaders would rather put all the above in the toilet than ever work with Bill or admit that partnering with or selling to Microsoft is a good business move.