Microsoft-Yahoo: The Deal of the Dinos

Yahoo, I’ve long argued, is the last old media company, for it operates on the old-media model: It owns or controls content, markets to bring audience in, then bombards us with ads until we leave. Contrast that with Google, which comes to us with its ads and content and tools, all of which I can distribute on my blog. Yahoo, like media before it, is centralized. Google is distributed.

It’s appropriate, then, that Yahoo is being bought by what one could say is the last old technology company, Microsoft. For Microsoft still operates on a model of control: closed in an open era. They will get along well together.

This is not a deal about content. At an entrepreneurial conference in New York this week, OnMedia, a venture capitalist said that the “perceived value of content is approaching zero.” That’s a kick in the kidneys to us content people.

No, this is a deal about audience and advertising. After the big guys consolidated all the ad networks they could — aQuantive to Microsoft, Tacoda to AOL, Doubleclick to Google (the EU willing) — next they’re buying up audience in bulk. That’s what Yahoo is, really. They call it a firehose: people in bulk, us as masses.

The reason this is happening is that advertisers and their agencies are still stupidly treating and buying us as masses — they want everything to operate like the one medium they understand: TV. (This is why, in the U.S., even as television’s audience shrinks, the rates paid for advertising continue to increase — because, oddly, the decrease in audience is creating a market scarcity in commercials’ reach.)

This is just as well for Yahoo, which had no strategy, really. They’d gone as far as they could with the old-media model, as exploited by the last CEO, former movie-studio head Terry Semel. Yahoo cofounder Jerry Yang started saying the right things about turning Yahoo into a platform, but it probably would have taken years to turn his culture around. They were too used to operating like a movie studio or publishing house.

Will this be big enough to beat Google? No, because big won’t win in the end. Open will.

Comments

[Tom B]

Excellent analysis. I've used Yahoo.com as my home page for about 15 years. Guess what? I don't HAVE to.

[Long-ShortGuy]

Jeff, this is an outstanding piece of analysis. But I want to drill down and question your central claim. You wrote:

"Yahoo... owns or controls content, markets to bring audience in, then bombards us with ads until we leave. Contrast that with Google, which comes to us with its ads and content and tools, all of which I can distribute on my blog."

The problem with this claim is that the majority of Google's revenue comes from ads on Google.com. That business, in fact, is growing faster than its ad business for publishers (ie. the ads on your blog). And Google's recent earnings miss was due to disappointing ad revenue from partner websites, not its own search property.

In other words, Google's business model, like Yahoo's, is centered on its own website.

Perhaps the distinction your looking for is actually this. Google provides a service that leverages the growth of the Internet. The more web sites there are, the more critical search becomes. Yahoo's business, in contrast, is threatened by the growth of the web. The more blogs and other content websites there are, the more competition for Yahoo.

If you read Yahoo's latest conf call transcript ( www.seekingalpha.com/a... ), you'll see that their strategy is to try to become the "starting point" for the web, ie. the filter and jumping point that people need to navigate the web:

"People seek out and find content from multiple sources, sites and social networks. Consequently, they’re gravitating toward those starting points that will help them simplify, yet also tap the broad richness of what the web has to offer. These starting points may send people to the far reaches of the web, but they come back to them because they satisfy our needs to communicate and find things on a daily basis... For Yahoo!, the five properties that are most critical in this regard are our Home Page, Search, Mail, My, and Mobile. There are also a few anchor property verticals like Sports, Finance and News that drive traffic to those starting points and therefore play a central role in our strategy. We believe that by leveraging Yahoo!’s enormous scale, insights and deep relationships with users and employing an open approach we are uniquely positioned to become the most frequent online starting point for users. To bolster this focus and our ability to execute on these most important services, we’re deemphasizing, opening up to third parties or outsourcing many of our other properties and initiatives."

The question is whether a My Yahoo page can ever compete with a simple search box from Google as the starting point of choice.

[Tom B]

And, don't forget, GOOG is way ahead in becoming a starting place for teh mobile web. Look at all the iPhone stuff they've done recently.