For most people on the Web, if Google or Yahoo cannot find something, it doesn’t exist. That has been one of the biggest drawbacks to creating a Website or application that displays itself as a Flash (SWF) file. Search engines could see the file, but they could not see what was in it. Until now.
Adobe has come up with a way for the search engines to read SWF files and index all of the information they contain. That means any text or links in a Flash application can now be indexed. This is a huge step forward for Adobe and anyone who develops in Flash/Flex. Michele Turner, Adobe’s VP of marketing for its platform business, explains:
We are releasing technology to Google and Yahoo that enables them to crawl and index SWF files. They are now searchable. This will open up millions of Flash files to search.
Adobe has created a special Flash player for the search engines that acts like a virtual user going through each application. It actually goes through the runtime of each Flash application and translates it into something the search engines can understand. So all of those fancy interactive Flash Websites and other rich Internet applications that have been invisible to search engines, can now be seen by them.
Turner acknowledges that this invisibility so far “has been a big problem for those developing rich applications.” After all, it doesn’t matter how pretty your Website is if nobody can find it. Flash applications and Websites (many ironically created by ad agencies) have not been able to take advantage of any of the search-engine juice that so many online ad campaigns depend upon. This should be seen as part of Adobe’s larger efforts to remove any remaining restrictions associated with Flash (in April, for instance, it opened up the Flash runtime as part of its the Open Screen Project).
Google is already rolling out the SWF-indexing technology, while Yahoo still “has some work to do,” says Turner. Even so, this won’t solve all the problems with Flash content showing up on search engines.
Becoming visible is one thing, actually ranking highly is another. Google currently can find about 73 million Flash files on the Web. But until Adobe makes it easy for the average Webmaster or blogger to link deeply into those Flash files, they are not likely to appear at the top of many search results.
The magazine’s site, Maxim.com, now uses Quintura to power its search instead of Yahoo. Its sister sites Blender.com and Stuffmagazine.com, will also soon be dumping Yahoo as well. All three sites are operated by Maxim Digital, which is owned by the private equity firm Quadrangle Capital Partners, where former Yahoo COO Dan Rosensweig happens to be an operating principal.
Quintura’s search interface creates a semantic tag cloud above the results. By clicking on different tags, users can refine their search and reorder the results.
I’m a big fan of the search tag cloud. But I’m not sure the final results are any better than Yahoo’s, and they certainly take longer to come up. The appeal to publishers like Maxim Digital, though, is that they can keep searchers on their sites longer by helping visitors find exactly what they are looking for—which in the case of Maxim readers is “hot girls” and “stupid fun.”
As Yahoo prepares for its upcoming shareholder meeting, it is fighting to convince enough investors that it did the right thing by spurning Microsoft’s various offers, especially the last one which had Microsoft just buying Yahoo’s search business, in favor of doing a search advertising deal with Google. Today, Yahoo filed the slide deck that it will present to shareholders at its annual meeting on August 1 (embedded below). There is a lot of he-said, she-said going on here, and the tone of the presentation is extremely defensive.
The slides go through familiar territory, marshaling Yahoo’s arguments for why Microsoft’s offer would have been bad for shareholders. But Yahoo does make some new points. Namely:
—Microsoft’s proposed $1 billion for Yahoo’s search business would be taxable, so shareholders would see less.
—Microsoft was only offering a 70% rev-share (TAC) for search ads on Yahoo, which is low for such a big deal.
—Cost savings would be no more than $750 million, not the $800 million to $1.5 billion that Microsoft estimates.
—Conveniently, the $750 million in cost savings that Yahoo estimates is equal to the 30% of revenues it would be sharing with Microsoft under the terms of the deal, thus offsetting any impact on operating income.
—Microsoft was only willing to guarantee its price-per-click rates for three of the 10 years of the proposed deal.
Yahoo’s strongest argument is that separating display and search advertising makes little sense strategically in a world where those two forms of advertising are colliding. (The Microsoft deal would have required that Yahoo give up its search advertising business and prevented it from re-entering that market in the future).
Towards the end of the presentation, Yahoo takes on activist investor Carl Icahn (who wants to replace the board with his own slate of directors) by pointing out that his track record with companies he has become actively involved in trying to change (Blockbuster, Motorola, Time Warner) has not been so great in recent years. It also points up the weakness in Icahn’s five-point plan to fix Yahoo.
Meanwhile, investors are not sure that Yahoo has a plan either. In a note today, Citi analyst Mark Mahaney wonders if maybe an AOL-Yahoo merger isn’t the best remaining option. Excerpt:
—Yahoo!-AOL merger possible - Four motivations: 1) $900 million of annual synergies, 2) Yahoo! gains display scale and keep search options open, 3) Time Warner gains Internet scale via a passive equity stake in larger entity, 4) Yahoo!’s clear interest in remaining independent.
The $900 million in “synergies” he sees are mostly from cost savings. But he also thinks there is value in keeping display and search advertising together. In fact, in another note today he made Google his top Internet pick, in part because of “continued marketing budget shifts to Search.”
Now, if Microsoft were to come back to the table with a serious offer for all of Yahoo, many of these objections would go away.
(Disclosure: As a former employee of Time Warner, I own shares in the company).
As anyone could guess, the Yahoo executive exodus continues. Kent Goldman, Yahoo’s Director of Corporate Development and one of their top deal guys, is rumored to be leaving the company. Goldman joined Yahoo in 2004 as Director of Business Strategy, reporting to Toby Coppel (at that time Yahoo’s Chief Strategy Officer - now Managing Director of Yahoo Europe). If this is accurate, the total number of Yahoo execs who have exited the company since January 2007 is approximately 115. 18 top execs have left this month alone, including Brad Garlinghouse, Jeff Weiner, Vish Makhijani, Qi Lu, Caterina Fake, Stewart Butterfield and Joshua Schachter.
The fact Yahoo is now losing deal guys isn’t necessarily a sign of good or bad news in particular. In 2007, Yahoo Director of Corporate Development Michael Marquez left Yahoo to become the Vice President of Strategy and Corporate Development for CBS Interactive (he was recently promoted to EVP). It may just be that Goldman was given an offer to go somewhere else that he couldn’t refuse.
Update: Interestingly Kent recently joined the ever-growing Yahoo Alumni group on Facebook, and a couple days earlier he became a fan of First Round Capital. We’ll be contacting them to see if he has any connection to the firm.
Update 2: We have confirmed that Kent is joining First Round Capital.
What does Yahoo’s latest reorganization all mean, especially in light of the situation with Microsoft still being up in the air? Like yesterday’s assertive letter to shareholders defending its Google deal, Yahoo is trying to show that it is getting on with its life, thank you very much.
The announcement is clearly aimed at squashing any lingering hopes for a new Microsoft deal to emerge. I spoke today with Yahoo’s chief technology officer Ari Balogh, who says:
The signal you should take from this is we believe most of that is over. We need to run this for the long term. While the board was considering the Microsoft deal, it would have been foolish to do a major reorg.
There is some wiggle room there. (He said “most of that is over” not “all”). But Yahoo has to act independently and shore up its resolve going into its shareholder meeting on August 1.
The main goal of the reorganization is to separate product development (all the Yahoo properties and services that consumers use) from advertising sales. It makes sense as far as it goes, but is not a terribly new idea. Most media companies separate the development of their content from the selling of their content. So Yahoo is acknowledging what everybody knows—that it is in fact a media company.
The products and content that it makes, though, are technology products. And that’s where Balogh’s group comes in. (As CTO, he oversees all the hardcore engineers in search and elsewhere that support, but are separate from, the new product group under Ash Patel). Balogh is standardizing technologies and development platforms across Yahoo in a major push to make Yahoo more open. Separating out product groups from the business side, he says, will “accelerate our open and social strategy” and allow good ideas to bubble up faster, even if they won’t make money in the short term.
Yahoo is also standardizing Yahoo’s internal cloud computing platform across its different properties into one consistent set of technologies. (Apparently, it is still a hodgepodge across different parts of Yahoo). Will Yahoo open up its cloud computing infrastructure to outside companies and compete with Amazon’s Web Services or Google’s App Engine? Balogh hints as much, and more:
That decision has not been made, but Yahoo will use it. One thing we will do is open it up in a different way. When we do, you will be surprised by how much we make available to the world.
It is clear that he wants to open-source parts of Yahoo’s infrastructure. He is also making all of Yahoo’s API’s and apps work on a consistent development framework. All of this is supposed to lead to deeper engagement with developers and ultimately killer products.
And maybe it will. But Yahoo still has some bigger questions to resolve about its future. It may want to signal that it is ready to move on past its dalliance with Microsoft, but some of its biggest shareholders are not quite there yet.
Clickpass, a startup that has simplified the OpenID login platform, has built out support for additional third parties that brings the promise of a universal login even closer. Users will now be able to use their Google, Facebook, Yahoo, or Hotmail passwords on any site that includes the Clickpass authentication system.
The new Clickpass system requires almost no effort from the end user. Supported sites simply embed a button on their login page which prompts users to login with their credentials from one of the aforementioned services; you don’t even need to have a Clickpass account. On supported sites, creating a new account is as simple as logging in with your preferred service (I use Gmail), and picking a display name to show other users. This is what OpenID should be.
So what’s the catch? At launch the service only works on a handful of sites, but CEO Peter Nixey says that implementing it on a website is easy - we can expect to see the number of supported sites skyrocket in the next few days. Developers need only implement the standard OpenID protocol along with the Clickpass system and they’re good to go.
One problem that Clickpass will soon face is that it is really a temporary solution to a problem most of these companies are already working on. We can expect Google, Yahoo, and the rest of the lot to implement their own version of OpenID, which will effectively take Clickpass out of the equation.
Yahoo has announced its anticipated reorganization. As expected executives Hilary Schneider and Ash Patel are consolidating power under president Sue Decker. All product development will come under the responsibility of Patel, a Yahoo veteran and Yang loyalist. Schneider will take over all the advertising sales teams across the company. A third “Insights Strategy” team has also been formed to centralize strategy. Nobody has yet been named to head up that group.
This reshuffle follows mass defections and a shakeup of its upper ranks. Wall Street is underwhelmed. The stock is down nearly 3 percent today (granted, on a terrible day for stocks overall).
The company is also announcing a new cloud computing group and new responsibilities for three search executives—Venkat Panchapakesan, Tuoc Luong, and David Ku— who are filling the hole left by former EVP of engineering Qi Lu.
Yahoo! Announces Realignment to Support Core Strategies
Centralizes Audience Product Development; Forms New U.S. Region;
Realigns Technology Organization
SUNNYVALE, Calif., Jun 26, 2008 (BUSINESS WIRE) — Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today announced changes to its organization aimed at improving its products, technologies and execution. The moves support its strategy to be the starting point for the most users, the must-buy for the most advertisers and the platform of choice for developers.
Key elements Yahoo! announced are the centralization of consumer product development to enhance the company’s ability to release products worldwide; the creation of a U.S. region focused on bringing products to market for users, advertisers and publishers; formation of an insights strategy team; and enhancements to the technology infrastructure to optimize the use of data and improve coordination between product and engineering teams.
“These moves accelerate the ability of our deep and talented team to build great products, grow our audiences and improve monetization globally,” said Jerry Yang, CEO. “They are designed to put us in an even better position to leverage our leading global audience and capture the opportunity we see in the convergence of search and display advertising.”
Business and Product Changes
The company is creating three new teams that will report to President Sue Decker. An Audience Products Division will assume responsibility for companywide product strategy and product management. It will be led by Ash Patel who previously managed the company’s Platforms & Infrastructure group. A U.S. region with accountability for all go-to-market activity in the U.S. will be led by Hilary Schneider, who previously headed the company’s Global Partner Solutions group. Finally, an Insights Strategy team will assume responsibility for centralizing and executing a common strategy for the use of data and analysis across Yahoo!. The company plans to name this group’s leader within the next few weeks.
“The changes we’re making today will help deliver superior global products for users and enable faster and better decision-making,” said President Sue Decker. “This is a logical next step in light of our success last year in moving to a more centralized approach to developing world-class marketing products. We have planned these changes deliberately over the past several months to clarify responsibilities and to capitalize on the scale advantages while allowing for fine tuning to meet local market needs.”
Technology and Infrastructure Changes
Yahoo! is making changes to its technology organization, led by Chief Technology Officer Ari Balogh, to better position the company to execute on its strategic priorities. Principal changes are developing a world-class cloud computing and storage infrastructure; rewiring Yahoo! onto common platforms; and creating a stronger partnership between product and engineering teams.
“Since my arrival at Yahoo! earlier this year, we’ve carefully evaluated the best possible configuration of our technology group to support our business strategies,” said Balogh. “I’m excited by the depth of our team which–combined with the talent we continue to recruit–will execute even better under this new structure.”
In order to expand its cloud computing capabilities, the Company will form a Cloud Computing & Data Infrastructure Group, charged with developing a computing infrastructure that balances scalability with cost effectiveness. It will move all consumer-facing platform teams to the Audience Technology Group, led by Venkat Panchapakesan. In addition, it is putting new leadership in place behind Yahoo!’s search group, naming Prabhakar Raghavan to direct search strategy and Tuoc Luong as the interim leader of the search product team. Both Prabhakar and Tuoc will also continue in their roles as the leaders of Yahoo! Research and Search Engineering respectively. In addition, David Ku will lead the Advertising Technology Group within Search.
Yahoo!’s Marketing Products Division, Connected Life and Corporate Marketing groups will continue to operate as they do today.
Last week Yahoo CEO Jerry Yang literally dropped off the grid for a couple of days, leaving his top execs (other than, presumably, President Sue Decker) in the dark. As I wrote on Saturday, no one could locate Yang, and, given the sheer number of high level departures and looming reorganization, those remaining in their jobs were basically freaking out.
As the weekend progressed it seemed clear that anything was possible. More than a few people saw Yang stepping down, with a new CEO stepping in. Other theories (all coming from Yahoo senior ranks) predicted anything from a merger, restructuring, asset sale, etc. Saturday was the low point; fear was rampant.
Then Yang reappeared, with a renewed determination to stay in power, fight off all these new activist shareholders and keep the status quo, say people close to Yahoo. No one seems to know exactly what happened to turn him around, but they say he’s digging in and keeping up the fight to keep Yahoo at least partially independent.
Today’s letter to shareholders was a not-so-subtle way of showing that Yang remains in control of the company, and retains the confidence of his board. And the board of directors also retains confidence in itself, apparently: “Your Current Board of Directors Has the Knowledge, Experience and Commitment to Best Represent Your Interests and Maximize Stockholder Value.”
Microsoft Negotiations Heating Up Again
Microsoft is fighting for Yahoo in two ways - First, they’re denying that any talks are occurring in the hope of keeping Yahoo’s stock price down. This keeps the PR people busy as they field calls and answer direct questions indirectly. Meanwhile, a contingent of Microsoft and Yahoo insiders, desperate to marry these two companies, keep telling us that negotiations are very much alive, even if not officially recognized.
It’s Orwellian, but everyone knows Microsoft and Yahoo are talking, but since they officially aren’t talking, we’re not supposed to report on it. Meanwhile, the discussions go on.
So what kind of deal are they not talking about? It could be a full buyout. Or it could be a partial buyout tied to that fugly search asset acquisition deal Microsoft put on the table after merger talks broke down. One person close to the negotiations pegged a full buyout by end of year at 60% likely.
What about that Google deal? Well, it turns out there’s no penalty at all if Yahoo simply never implements it. Google can terminate the agreement, but there’s no downside to Yahoo. If Yahoo sells itself to someone they have to pay a steep $250 million fee to Google. But an interesting detail: Microsoft can buy up to 35% of Yahoo without triggering that $250 million penalty fee to Google. See the full analysis in our previous post.
In a letter to shareholders that reminds me of the saying “why buy the cow when you can get the milk for free,” Yahoo Chairman Roy Bostock and CEO Jerry Yangexplain why it chose a search deal with Google over Microsoft.
For the record, we agree - given a choice between the Google and Microsoft search deals, Google’s was better, even with the steep fees if Yahoo chooses to sell itself to a competitor later. But the Microsoft deal would permanently hobble Yahoo, the cash flow upside wasn’t sweet enough.
But here’s what’s really going on: Yahoo doesn’t really want the Google deal, either, as evidenced by their effort to sell to Microsoft just before signing the deal two weeks ago. The deal was designed to get the stock market to chill out (it did the opposite), and to spur Microsoft back to the table to talk full buyout again.
There’s more going on here as well - this letter sends a new message to the market (as does the fact that Yahoo has not announced the reorganization yet). More on that in post coming up. But for now, a clear message is being sent to Microsoft: If they want Yahoo’s search milk, they’re going to have to buy the cow.
Dear Fellow Stockholders:
We are writing to update you on the latest developments here at Yahoo!, including our recently announced commercial agreement with Google and the outcome of our discussions with Microsoft regarding a potential transaction.
On June 12, we announced a non-exclusive agreement with Google that we expect will generate approximately $250 to $450 million in incremental operating cash flow for Yahoo! in the first twelve months following implementation. This cash flow will enhance our profitability as well as help support achievement of our key strategic objectives. Combined with continuing advances in our own search capability, the agreement is an important step in our efforts to capitalize on the high-growth online advertising opportunities where we are best positioned to compete successfully and create more value.
Let us explain why we find this new agreement so exciting.
The Yahoo!-Google Agreement is Financially Attractive and Strikes the Right Strategic Balance.
Under the agreement with Google, Yahoo! will continue to provide algorithmic and sponsored search results, but now will also have the ability to run sponsored search ads supplied by Google alongside Yahoo!’s search results. Advertisers will pay Google directly for each click on Google paid search results appearing on Yahoo!. Google will then pay us a fee (in industry jargon, traffic acquisition cost) based on revenue realized from click-throughs on ads supplied to Yahoo! by Google.
This carefully structured agreement strikes the right strategic balance, enhancing our financial results while advancing our strategic objectives of being the “starting point” for the most users on the Internet and offering such compelling value that advertisers will see us as the “must buy” in online advertising.
One of our key strategies for achieving these objectives is to capitalize on the increasing convergence of search and display advertising, where we are especially well positioned to compete and succeed. We have already accelerated our efforts to strengthen our presence in display through a variety of initiatives and acquisitions in recent months. Our new commercial agreement with Google enhances our ability to pursue this strategy.
Another key strategy is to open our platform to other developers to optimize monetization for our advertisers and publishers and provide the best experience for our users. We see this agreement as a natural extension of the efforts we have already made toward an open marketplace.
The Google agreement is non-exclusive and provides strategic and operational flexibility for Yahoo!. It allows Yahoo! to use Google’s services in those areas where Google monetizes our inventory more effectively but also permits us to continue to use our own search technology in areas where we believe we are most competitive. The net result is that the agreement helps us accelerate one of our strategic aims–closing the monetization gap. At the same time, it allows Yahoo! to continue to compete aggressively in search and display advertising.
Importantly, the agreement does not prevent Yahoo! from pursuing other alternatives that could increase stockholder value. Because the agreement can be terminated by either party upon a change in control, it would not preclude a transaction with Microsoft or any other potential acquiror in the future.
The Yahoo!-Google Agreement Does More for Stockholder Value than Microsoft’s Search-Only Hybrid Proposal.
We also want to update you on the conclusion to our discussions with Microsoft regarding a potential transaction. As we explained in our last letter, our board and management held numerous meetings and conversations with Microsoft about its proposal to acquire Yahoo!, both before and after Microsoft withdrew that proposal on May 3. On June 8, our Chairman, Roy Bostock, other independent board members, and members of Yahoo!’s management team again met in person with Microsoft representatives. At that meeting, Microsoft stated unequivocally that it has no interest in acquiring all of Yahoo!, even at the price range Microsoft had previously suggested.
Microsoft did propose an alternative transaction. Rather than acquire our whole company as it had been proposing for months, Microsoft now proposed to acquire only our search business for $1 billion and a share of future search advertising revenue. This proposal also included an $8 billion investment in Yahoo! but required Yahoo! to commit to a 10-year exclusive arrangement that would have made us dependent on Microsoft for all of our search business. It would also have given Microsoft veto rights on certain future Yahoo! actions, including a sale of Yahoo!. Our board of directors and management made a great effort–and conducted in depth negotiations–to elicit a feasible proposal from Microsoft that made strategic and financial sense for Yahoo!, but without success.
While Microsoft’s search-only hybrid proposal may have been helpful to Microsoft, our board and management concluded it would have had a significant adverse impact on Yahoo! strategically, leaving the Company without the operational control of search assets and technology we view as critical to our objective of becoming a leader in the converging search and display advertising business. The board and its advisers also carefully studied the financial impact of Microsoft’s proposal and concluded that it would have provided no meaningful improvement to our operating cash flow. In short, this proposal would have generated substantially less value for Yahoo! stockholders than Microsoft has suggested.
Based on all the key factors–strengthening our competitiveness, protecting our strategic position, generating attractive financial returns–the Google agreement is far better than Microsoft’s search-only hybrid proposal. That’s why we moved forward with it.
Your Current Board of Directors Has the Knowledge, Experience and Commitment to Best Represent Your Interests and Maximize Stockholder Value.
The events of recent weeks underscore the fact that your board of directors is far better qualified to represent your interests in the effort to maximize stockholder value than the slate put forward by Carl Icahn.
Based on Mr. Icahn’s narrow agenda, it seems highly unlikely that either he or his slate would bring added value to Yahoo!. Consider the following:
– Mr. Icahn put forward his slate so as to sell Yahoo! to Microsoft, even though he had no knowledge of the sustained efforts made by your current board and management to determine whether Microsoft was willing to engage in a transaction that would provide appropriate value and certainty of achieving that value. On June 8, Microsoft once again made it perfectly clear that it is not currently interested in acquiring Yahoo!.
— Mr. Icahn publicly opposed any alternative form of transaction with Microsoft. Your board and management, after thorough and deliberate negotiations and evaluation, separately concluded on its own that the alternative hybrid deal proposed by Microsoft was, indeed, not in the best interests of the Company or its stockholders.
— Mr. Icahn urged, as an alternative to a Microsoft transaction, that Yahoo! find a way to partner with Google that would not preclude a transaction with Microsoft in the future. We have done exactly that through the commercial agreement with Google we announced on June 12.
Simply put, you can choose to vote for a slate of nominees with no articulated plan for the future of Yahoo!–and who now have essentially no alternative agenda to offer you–or you can choose to vote for your existing board of directors which has the independence, experience, knowledge and commitment to navigate the Company through the rapidly-changing Internet environment, execute on our strategic objectives and deliver value for Yahoo! and its stockholders.
It is time for Yahoo! to turn its undivided attention to implementing its key strategies, and we therefore urge you to reject Mr. Icahn’s slate and his ill-defined agenda.
We strongly urge you to vote your WHITE Proxy Card today for your current board of directors.
We look forward to sharing our progress with you as we move forward and we thank you for your support.
Sincerely,
Roy Bostock Jerry Yang
Chairman of the Board Chief Executive Officer
We’ve got multiple sources at both Yahoo and Microsoft telling us that official talks are back on between the two companies. But we’re hearing something different than CNET - the talks are about a full buyout again, not a sweetened search-only deal.
The information we have is thin, but what one source is saying that Microsoft is talking a price lower than the $33 they were offering when the talks disintegrated in May. Given Yahoo’s recent share price (it’s below $21 today), and the fact that just about everyone other than their board and top execs are publicly screaming for a deal, I’m not surprised.
Microsoft official comment is “no comment,” which actually contains more information than it appears to. For well over a month, Microsoft has officially been saying they’re no longer interested in Yahoo. They didn’t say that today.
Update (11:44 am PST): Additional sources say the Yahoo board offered to sell to Microsoft for the “low $30s per share, and below Microsoft’s original offer” immediately before they signed the Google search deal.
Update (11:47 am PST): From CNBC:
As mentioned at 13:29, CNBC commentator said that a source very close to Microsoft (MSFT), who is ‘in the know’ about negotiations between the two, empathically said there is no deal for the all of YHOO and nothing has changed as of today. Notes that discussions between the two about YHOO’s search business has always been on the table. Reiterates that no deal on the table for the whole co.
What we’ve heard is that the two sides are in current discussions over a complete buyout, not necessarily that there’s a deal in place or even that Microsoft has made any kind of firm offer. Another source at Microsoft reiterates to us that they’re a buyer at the right price, but isn’t saying what that price is.
For most people on the Web, if Google or Yahoo cannot find something, it doesn’t exist. That has been one of the biggest drawbacks to creating a Website or application that displays itself as a Flash (SWF) file. Search engines could see the file, but they could not see what was in it. Until now.
Yahoo has announced its 
We’ve got multiple sources at both Yahoo and Microsoft telling us that official talks are back on between the two companies. But we’re hearing something different than 
