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.
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Mike –
Let me weigh in as well on why I don’t think Google’s dominance in search is going to cause the problems you imagine.
1. Search is only one way to find things. It’s the most easily monetizable, so it gets the lion’s share of the attention. But take a look at (and report on) what percentage of techcrunch’s traffic comes from search. For the O’Reilly Radar blog, it’s about 35%. Significant, sure, but hardly a sign of lack of competition. If Google absorbed both Yahoo! and Microsoft, the share of our visits coming from search would still be below 40%. (That tells you what a small share of our search traffic comes from the other guys today.) And that’s just the web traffic. Count in RSS (which is much bigger than web for most blogs, including ours) and the Search share of traffic goes down to a much smaller amount. So there’s not much worry about people not being able to find information.
2. You specifically raise the specter of Google taking a bigger share of the search dollar absent competition. I’d be interested to know if you have concrete case studies of better deals because of competitive pressure. Seems to me that if Google does this, they will undermine the virtuous circle that drives their success. Maybe they will do this, but if they do, attention and value will migrate elsewhere, as eventually happened with Microsoft.
At O’Reilly, we always say “Create more value than you capture.” All successful companies do this. Once they start capturing more value than they create, their market position erodes, and someone displaces them. It may take a while but it happens eventually. If Google takes too much of the pie, it will be a great opening for a new competitor. Right now, because Google is creating the most value for the ecosystem, competitors continue to lose share. If they started taking a lot more of the revenue, Microsoft’s share would go up, plus new startups would have an opening that they don’t have now.
3. The real source of my argument for this position, which you linked to in your piece, but I’ll point to again here, is that Web 2.0, the internet operating system we’re building, is much bigger than search. Search is an incredibly powerful subsystem of that OS, but it is just a subsystem. There is lots of competition across the system as a whole, and we’re a LONG way from the concentration of power that represents monopoly when we take that into consideration.
4. The landscape is changing so fast. To take only one axis, consider mobile. Google doesn’t dominate mobile/local search. That’s a whole new game…. Again, there’s lots of competition.
I could live with MS Flickr… *IF* the new Microsoft is real. MS Yahoo would not beat Google but it could be a damned good 2nd. Besides being a good 2nd and building their brand bigger… shareholders would have benefited. There would possibly have been a lot of winners. Yangs actions are that of a loser and he has destroyed a hugh amount of value. I think he is a total fool and pity for Yahoo, but I don’t think I’ll be proved wrong.
I for one am glad that Microsoft did not get Yahoo. Everything MSFT touches seemed to end up corrupted. I was a hotmail client way before it was sold to Microsoft and very soon afterwards the service went to pot. Slower mail for one and endless spamming drove me to cancel the account. Everything tells me that Yahoo is going to survive this so is my husband’s yahoo account which would be terminated in case it got sold to Microsoft.
Simply not interested in holding the MS stock with or without yahoo. And I have no fear at this time of Googles position in search. I do not believe Ballmer has a clue how to keep MS from a long painful decline into a technology background player (see IBM.) I had no idea that yahoo believed like I did that MS must fully re-invent themselves and shed their unjustified arrogance and stagnant culture in order to achieve any substantial future growth. Acquisition is not the answer for MS unless they are wiling to learn from the innovative cultures of the companies they swallow. Yahoo would have done nothing for MS and the MS internet mindshare would have continued to slowly shrink and Yahoo would have become a distant memory. They themselves have acknowledged their own cultural bankruptcies by holding fragile profitable acquisitions at arms length to make sure the MS cooties do not rub off. If yahoo became a MS property that would be a property I would personally abandon. Do not underestimate the ambivalence of the consumer toward MS. Where there is ambivalence there is a search for alternatives. Really good alternatives are available.
Shareholders’ value = greed…
Why get pissed when you didn’t make a fast buck. Get out of Yahoo today and buy RIM - guaranteed a fast return.
In economics and in law a company must dominate a market over the long term to be classified as a monopoly. Evidence for that is sustained very high long term profits. Of the companies you mention only Microsoft qualifies as a monopoly. Google’s success in the online advertising market doesn’t come close.
Is there nothing more to the internet than ’search marketing’? Is that what I and the rest of the planet has been obsessed with for the last decade or so? I had no idea that’s what my involvement with the internet boiled down to. I thought I was sending email, reading, learning and gathering things. Apparently not.
I’m not more sad, because I think Yahoo shareholds will ask for change… 3.5 billion is a lot of money to think, 3 times more than MS think Yahoo will earn, and about half of MS was buying from Yahoo… so… today, that 8 billion will buy more shares than last week…
For someone who sees Yahoo/Microsoft/Google comparisons as apple to orange, he/she must forget about the changing competitive environment. If you don’t diversify and just stick to a single product, you’d be dead in a blink. Neither Microsoft, Yahoo or Google is about a single type of product. Having a right direction/vision for the future is more important.
I see this moving beyond Yahoo acquisition. I see a tussle that has just come out in open and will be here to stay for sometime. What this really means a fresh era of consolidation. Not only in the leading internet platforms like Google and Microsoft but also in other prominent web companies; as they struggle to regain the market share.
Read More on my blog…
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Yahoo has had such a role in development of the web since the good old day’s of the heady 90’s….its sure a shame to see it go down the tubes such as so..if only for how it will go down in the history books
Thank you techcrunchreader for posting the board members and their other affiliations.
So, you’re against monopolies? Do you also rail against Microsoft’s Office and Windows monopolies? (Yeah, right.)
Google does what they do well. That’s why they’re the leader. They haven’t done exclusive OEM deals or spread FUD (like Microsoft did on its way up — when the were grasping the shoestrings of IBM).
Yahoo’s stock was at about $19 when Microsoft made their buyout offer. So, you could say they’ve gained billions of dollars in value, as they’re still well above that mark. Microsoft lost a pretty good chunk of its value, too — in case you’re wearing blinders. It’s kind of going around in the stock market these days. (Like, you know, duh.)
Still, Yahoo’s got a lot going for it — one thing they’ve now got is more guaranteed net profit from the Google deal…
Oh, that’s right, you’re death on monopolies, I forgot about that.
(Or at least ones whose name starts with “G.”)
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 is Google in search marketing.It is true 100%
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