Carol Bartz and Steve Ballmer are all smiles this morning with the signing of their long-awaited search deal, but the agreement isn’t going over so well on Wall Street. Shares of Yahoo took a plunge this morning on the announcement and are currently trading at $15.31, down 11 percent from yesterday’s close. Microsoft shares are flat.
Investors who were hoping for a large upfront payment and “boatloads of money” were disappointed by the terms of the deal, which includes no upfront payment. But that is short-sighted of investors because the actual deal ends up giving Yahoo a much bigger share of search revenues (88 percent) than the previous deal that was on the table last year. It is actually a much better deal for Yahoo long-term if it works, and aligns its incentives closer to Microsoft’s.
If Yahoo were instead to realize more of the value of the deal upfront, it wouldn’t have as much reason to make the deal a success over time. This is a10-year deal. Making sure both sides are working towards the same goals for the next decade is pretty crucial, and a large upfront payment would have diminished that incentive because it would have come with a lower revenue-share for Yahoo on the backend. Microsoft CEO Steve Ballmer said as much on the conference call this morning when asked what the differnce was between this deal and the one offered last year.
The deal last year was tailored more towards an investor than an operator. This deal is different, not better. Less upfront payment, and definitely a higher TAC rate.
(The TAC (traffic acquisitions cost) rate is the percentage of search ad revenues Yahoo gets from the deal). Whether or not Bartz had a choice in the matter, taking the higher TAC rate over a “boatload of cash” will be better for Yahoo in the long run. Eventually, Yahoo’s investors will figure that out.
10 years is a long time. I’m sure there will be another major structural change by Bing or Yahoo’s part again before the 10 years is up.
James F.
Owner, TwitterBackground.com – Free Twitter backgrounds
I don’t get you.. why would you not put that url beneath your name anyway? Just seems silly… put it both places..
Not a good reaction indeed, although I’m not surprised, as the deal probably raises many eyebrows.
Of course, the lack of a boatload of money is a deception for any Yahoo investors.
By the way, your second link is broken, it’s in text instead of being an actual link.
The main problem with this deal is that Microsoft’s AdCenter is a joke, delivering ads that almost nobody clicks on and generate the lowest cost per click in the industry. Cash up front would be better than 88% of such paltry revenues, unless there is some kind of minimum revenue guarantee. Throwing in Yahoo’s ad inventory won’t boost things nearly as much as they are hoping as their customers largely overlap already. Yahoo’s already ad-blind audience (4 top ads + bottom and right-hand side ads on most queries, are you kidding me?) is no prize for MS either.
+1
Please get your facts straight before posting something like this. CTR is actually pretty competitive, not as cut & dried as you present.
http://www.sear...arch-ads/12091/
I think he is mostly talking about the CPC being low, which obviously wouldn’t be great news for Yahoo investors.
At this point, I am going to stop referring to Yahoo as even being a search company. If they won’t use their own tech, and they can’t get their act together to use their position as #2 in search to pose a credible challenge to Google, they just don’t deserve that designation.
http://www.exam...a-search-engine
So now we are left with really two choices — Google, or Microsoft. I think the folks at Google are resting comfortably tonight.
Stop the presses…Will Smith says Yahoo is not a search company… Yahoo wasn’t going anywheres fast in search. It wasn’t about tech it was about branding. People just trust google more. They needed to shake things up… They needed this deal to compete as did Microsoft. This is good for the web, good for Yahoo and good for Microsoft. Google is kicking everyones ass and to be honest none of these so called new search engines that show up on TC every couple of months stand a chance. Bing does if they can add in a blog interface that is better than blogger and a email interface that is not hotmail, not love and is competitive with gmail.
Go back to fighting robots…
It is good for the web.
It is good for the web
There is also a bunch of market uncertainty right now that investors are busy worrying about – just check out the nasdaq composite. The details of the deal probably are missed in the shuffle.
This is racist !
indeed!
I think this is a great deal. Watch out Google! There COMING!
the main point is “if it works” – this is a complex deal with major execution hurdles; the upfront money would have given a big boost to the company to continue to invest and innovate in other areas of the company more aggressively…as the saying goes a $ today is more valuable than a $ 10 years from now….its not short sighted on investors part – they don’t like uncertainty.
MS won, Yahoo lost and lost BIG! This deal is a death knell for Yahoo. Yahoo will lose insight into its customers’ habits and won’t be able to move as quickly and adjust. MS on the other hand has gotten the most valuable thing that Yahoo has: their traffic.
I completely agree, although I’m not thrilled with what appears to be an upcoming Duopoly between Google & Microsoft.
I wonder whether Obama’s people will look into this as a possible anti trust case or just ignore it altogether (as I know Europe will be whining about this deal).
Ummm….a duopoly is generally considered to be better than a monopoly, which is where this industry is headed without this deal.
Either way, this is bad news for Internet privacy. I guess http://www.Yauba.com is now the only hope for people who do not want Google or Microsoft knowing all about us.
@Brian S.: It’s only a duopoly if the market allows it to be one.
If someone comes up with a better way to search, or a better algorithm, then consumers will move there. And it’s not like there’s no economic incentive for innovation in this market.
I am confident that this market will remain healthily competitive.
I just think YAHOO completely failed here. MSFT is buying most of the Overture asets for free while Yahoo spent $1.7B in 03 to acquire them.
Yahoo is accustomed to paying billions for something that they turn into a worthless asset.
+1
It’s fairly normal for shares to drop any time a merger or acquisition is announced no matter what companies are involved. Not much to get excited about IMO.
yea, investors are just shorting it
deal is not very good for Yahoo. Bartz promised “boatloads of cash” but got nothing upfront. Yahoo is terrible at execution when it comes to anything ad or search-related, remember Panama?
This is good for building the brand called Bing, but that’s about it.
Though at a first glance YHOO seems to be giving up its sovereignty, in long term the deal will be beneficial to everyone. MSFT is clearly an instant gainer. However being able to focus on fewer properties will make YHOO stronger in future.
Wow! according to the graph this was so bad that the function doesn’t exist at that point?
lol no game on after all?
YHOO is still falling as more and more investors realize what has just happened.
RIP Yahoo 1995-2009.
Google’s down today too, should we read that as the market thinking that the deal is bad for Google?
The rest of the market is down today too. Don’t think we can read much into it.
Google’s down less than 1%, while Yahoo’s down more than 12%, go figure.
The key phrase being “It is actually a much better deal for Yahoo long-term if it works”. If it doesn’t work, what does Yahoo get? These are two companies that can’t figure out search or how to make money from it yet by joining forces, they can compete with Google. This will probably last a year or two before Microsoft pulls the plug if it’s approved at all.
Smart move for Yahoo. The whole market is in a correction. A buyout is not realistic. When the market does improve with the economy, different story.
Umm…
http://www.goog...q=NASDAQ%3Ayhoo
So it’s back at the same level it was at 2 weeks ago, and still up from what it was 2 weeks before that? Unless you’re a day-trader, I think you’ll be OK.
Yahoo lost:
1. “Search is the killer app”. Ballmer has repeatedly said that. You can’t just give up an strategic asset like that at least not such cheaply.
2. MSN is more a competitor to Yahoo than Google. Guess who MSN or Yahoo will get the smarter / faster Bing?
3. Yahoo will invest more in Sales and Marketing and looking at its numbers, they are really bad at that, just 4 USD in sales by each 1 USD in MKT.
4. MS gets access to Yahoo’s Search Infrastructure and not the other way. So they will know all Yahoo Tricks and Yahoo nothing about the algorithms at Bing. Even worst they will likely know more about Yahoo Customers search habits than Yahoo itself.
5. adCenter will be the Gravity Center. So you can expect it to benefit more to MSN than to Yahoo. When the deal goes out, inertia alone will make Advertisers and customer stick with adCenter.
To summarize, Bing – Yahoo will be a parasitic relationship, at the end of that Yahoo competitiveness will be seriously impaired and MSN – Bing then will either kill Yahoo or throw it away.
As a Yahoo shareholder I will give the boot to Bartz or at least to her counselors.
+100
Exactly, Dave! I hate it when people manipulate charts to support their side of the story. To not include that the stock had a run up because of the rumor that the deal isn’t telling the whole story.
So what happens to things such as Yahoo Boss and other things for developers involving Yahoo search.
Do Bing travel and Yahoo Travel compete?
Similarly Bing Health and Yahoo Health.
Not sure whether Bing will power these verticals for yahoo or not.
Biggest mistake of yahoo. Why would any one will use yahoo search when they know that they are going to get results from bing? Its easier to type http://www.bing.com than http://www.search.yahoo.com. isnt it? MS has done one the another cleverest deal to make bing mature, own the technology and just give marketing rights to Yahoo for some period (which i am not sure even would be respected by Herr S.Ballmer). Better for Yahoo to had gone for 47.5B$ deal last year rather than giving up for free.
I think most people who search on Yahoo! do so from Yahoo.com, the main portal homepage. That and the persistent search bar across all of Yahoo’s billions of pageviews is what delivers the most volume to their search engine and will build Bing’s market share and ad revenue.
>what the differnce
typo
This is something Yahoo had to do, I think, for their future.
No, this is what MS needed to do.
I remember the articles from Michael Arrington “Go out Jerry Yang”, etc, etc.
This man had a vision and could do something good with Yahoo.
Carol Bartz will sign the death of Yahoo soon. She’s already got her pen in her hand with this sale.
wall street arbitragers “buy on rumor and sell on news”
what happened today is purely technical / market driven reaction to the news. . . not how the investor community view the deal
there may be a technical component and long term this would be the only option for both of them – this is still a bunch of shiiite!! Carol gave away the shop – she gets no boatloads of moola, trades 100% rev for 88% @ lower CPC to save some on search ops expenses – it does not add up -it’s truly unfathomable. no upfront cash for the risk taken on by the deal – no wonder investors are bailing – they gave everything away – sad, sad, sad – to think they were offered $40+Bn and they see fit to give it all away to save on expenses!!!!!
the part of this that seems so strange is that yahoo would actually sell search. normally, that’s what you would do with an expensive but non-core capability.
so, with this deal, yahoo is yahoo saying that search is not at the core of their business . . . if so, what’s left? media aggregation and communication services?
The reaction of Wallstreet only shows how retarded the investors are! But we knew it already, right?
this deal is too little too late. Google has too much of a following and better search results. http://www.slicefinder.com
Great, my SEO guy is excited.
Next time techcrunch calls for an interview I am putting Robert on.
Paul Azous
So once again I am reminded that we, the people, are nothing more than money to be made by the big bloodsuckers. I’m sorry, was I supposed to jump with joy about this MS/Yahoo deal? Well, sorry to disappoint you, but I’m not jumping.
I absolutely despise companies who stand on the rooftops and shout to the world about how many billions of dollars they are going to be making, at OUR cost. Microsoft is in my opinion not a morally sound company, and in my humble opinion, Yahoo has lowered their standards significantly with this deal, in my eyes. Google, here I come!
Bottom line. They gave up search. If you want to be the biggest online, you HAVE to own search…Period. It is the key to so many other services. They sold out and sold out so damn cheap. All this does is give Google more market share to easily wrest away from the both of them. And where does it leave Yahoo? Yahoo no longer has anything that anyone else wants. Yahoo is now roadkill to be picked over by thousands of small internet publishers who will happily take their users over the next few years.
You guys don’t get it… YHOO was never a real search company in it’s history… it used to powerd by Goog; also search is a very expensive R&D game… now YHOO can focus it’s investment and energies into buying companies like Twitter or even investing in Facebook…or other emerging technologies, interesting no? YHOO has 4B+ in cash already, another 1B is meaningless… also with expected $500M in net gains, that $1B happens in the first two years… with cash, focus, and opportunities for more aquisitions, plus the largest online audience – lots of opportunities for YHOO… oh yeah and the wild card — what if Bing gets as good or, gasp, better than Goog in a few years… hmmm… interesting times…
To summarize… http://www.into...feM20090802.jpg