'BingHoo' - Not So Awesome, Say Analysts

Yahoo! (YHOO) and Microsoft (MSFT) are certainly pulling out all the stops to put the best face on the merger of their search activities. Yahoo! CEO Carol Bartz gushes that "everything’s just going to get a whole lot better” and that “this deal will make the difference between a great Yahoo! search experience and an awesome one.” Maybe that’s to make up for the promised boatloads of cash Yahoo! is not getting.

She also features in a dull video extolling the virtues of the deal. Microsoft’ CEO Steve Ballmer’s version is slightly more interesting thanks to the live background. Both appear at a special website set up to tout the venture choicevalueinnovation.com, though it’s hard to see how the deal advances any of these goals.

A quick scan of Alacra StreetPulse finds that most analysts greeted the deal with a yawn:

Mark May of Needham & Co says the deal is a clear negative for Yahoo because:

1. There’s no upfront payment;.
2. The minimum guarantee is only for 18 month of the 120 month deal;.
3. The deal requires regulatory approval and management expects closing in early 2010;.
4. Management doesn’t expect to see the full benefits of the deal until 24 month after regulatory approval, which could mean not until 2012;.

The deal, which lets the two companies share revenue from ads sold next to results generated by Microsoft’s Bing search engine, may disappoint some investors because it doesn’t include an immediate payment to Yahoo - Jeff Lindsay , Sanford C. Bernstein & Co.

BusinessInsider’s Henry Blodgett sees trouble ahead for Yahoo!:

• The deal is significantly worse than expected for Yahoo, as the company will get no money upfront.

• The deal is positive for Microsoft, but largely because Microsoft was nowhere in search without it. Saving the upfront payment is also a help.

• Ironically, the deal will likely be positive for Google, which will now likely benefit from months of purgatory as Microsoft and Yahoo work to clear regulatory scrutiny and then go through the massive challenge of trying to integrate their sales forces and technology. Google itself will also now be able to argue persuasively that there is a big, viable (if discombobulated) competitor in the market.

Conceptually, the idea of Microsoft and Yahoo combining forces is smart. Neither alone has enough share of the search market to be a “must buy,” and search relevance and pricing improves with scale. Both companies would likely just continue to lose share ad infinitum without a deal, so they have little to lose by working together. And Yahoo will gain some cost savings, at least for a while.

That said, we think the structure of the deal could end up being a disaster.

Rebecca Jennings, Forrester Research’s principal London analyst is more positive:

This deal should allow Yahoo! to give up its drive to to beat Google, and concentrate on the elements it does do better , display media and social media , devolving the competition and the significant investment involved off to Microsoft.

Likewise, The Economist:

The combination, which was announced on Wednesday July 29th, is not as far-reaching as originally envisaged. But it is likely to create a serious rival to Google, the online giant that dominates both of these markets.

Logos courtesy The Economist

Comments

[coyotebait:]

Two questions:

1. How oversold will YHOO get? $14.00, $12.00, $10.00, or less???

2. How much being overlooked?

The recent revamp of the Yahoo page shows Bartz & Co think they can monetize the indisputable power of YHOO (sticky eyeballs) in a new window of opportunity.

Right or wrong, they see customized news delivery on the NET as the future ---- rather than the futile attempt to compete with GOOG for advertisers on the search platform. ...MSFT has the money to try. Let's make a deal! ...To whatever extent MSFT is successful, it will contribute 88% to YHOO's bottom-line and relieve YHOO of the expenses thereof). Whether or not it's a good deal depends upon how Bartz deploys the benefits of an apparently bad deal.

With the demise of most news"papers" YHOO sees Internet news delivery, on-steroids, as the quickest, most practical, and most profitable way to monetize the power of YHOO's online presence.

On this platform whose time has come, advertisers will be able to target their audiences more accurately than ever before ---- what YouTube, FaceBook, and Twitter, have not yet been able to do, and will likely not be able to do nearly as well as YHOO.

Customized news delivery is the new and promising horizon for a new and more prosperous YHOO. ...MSFT-Bing revenues will finance it, securing an acceptable bottom-line (EARNINGS), as well as securing a solid level of cash flow, for the Bartz strategy to play out over the next 5-years.

Unfortunately most analysts and speculators don't have the bandwidth to understand the sound business strategies that this time-proven Autodesk-trained CEO is putting in place.

JMHO

CHOMPS,

^__^

..

Jul 30 01:08 PM

[ddadm09:]

Finally Microsoft has reached a deal Yahoo for an internet search partnership. Will the newly announced deal between giants Microsoft and Yahoo be a good thing to them and bad to Google? Got to wait and see. I was just curious to know all the past negotiations between Microsoft and Yahoo so collected all the articles and links (more than 200) related to the current merger and the previous events or negotiations between Microsoft and Yahoo. If you are interested check the link below.
markthispage.blogspot....

Jul 30 08:06 PM

[steveballmer:]

I love it when an intricate, fiendish plan comes together!
Here is the She-CEO of Yahoo (Carol Bats) and myself signing the final agreement to give Microsoft control over the entire backend for Yahoo’s entire search! Yahoo will handle ads, marketing, hosting and all that kinda' crap, but we will be the ones in charge of the main product, SEARCH! I was so happy as I was signing this that I almost ... well, I was happy!
The She-CEO tried to put a good spin on Yahoo's surrender, she said,
"We never really liked search anyways! We are letting these people handle that stuff while we pursue the cool stuff ya'know!"
Miss Bats, have you ever heard of a Puppet master?
Oh well, it has been a VERY good week here at Microsoft! Very good indeed!
(In the meanwhile, the man who opposed me at Yahoo (The Vagrant Yang) continues to marinate in his own feecees on the streets of Redmond!
flickr.com/photos/ball.../
Let him be a lesson to all!

Jul 30 09:02 PM