Yahoo! (YHOO) got kicked by Google (GOOG) by initially powering its search engine by Google.
Now, it’s about to let Google serve some of its ads. This is a dumb move strategically and tactically.
It's also desperate. Remember one thing: when Microsoft (MSFT) threatened to reduce its bid last week, one reason it cited was that YHOO’s cold reaction and the resulting proxy war would have an adverse effect on YHOO’s perceived value…
But now, by opening up its search inventory to Google - even if it’s only 3% of its inventory - does in fact reduce YHOO’s relative value to Google for a buyer such as MSFT.
I am really not sure what Yahoo! gets out of this other than pissing off a buyer.
Sooner
or later, someone needs to take the keys away from Jerry Yang. In
fact, both Yahoo!’s CEO, President and CFO along with the Board’s
handling of this will go down as the worst handling of an M&A
opportunity in recent history. What should and could have been a $50B
sale to MSFT will go down as a low $40B’s exit.
Yahoo! just checkmated itself
MSFT reacted to YHOO/GOOG’s partnership.
Forget what the analysts and reporters will say, here’s how executives read yesterday's move by Yahoo! to let Google run ads alongside 3% of its search results.
- After investing billions in Panama, Yahoo! is now admitting that it can never catch up Google. We’re not talking about catching up Google’s in terms of market share, we’re talking monetization.
This does in fact reduce its value to MSFT. This actually gives MSFT a reason to really threaten to lower its bid.
- In search, data is everything. The EU just said that search companies must purge data after 6 months. If such a measure would ever pass, then the advantage that data miners such as Google have would be reduced. In other words, Google’s advantage - and share premium - relative to Yahoo! would fall.
This is a not-so-tacit admission that Q1 was not so hot… and given that YHOO’s most senior brass has little Street cred left, I presume this will be the promise they try to push to investors when they announce Q1 results.
Yet by opening up its kimono to Google in April 2008 as Microsoft is about to acquire Yahoo! means that Google will get a lot of data on Yahoo!, which in turn gives Google a far greater premium on Yahoo! than they did beforehand.
- Yahoo! should have done this deal by getting some kind of right over Google’s display business. I know this is dreaming… but Google would welcome some expertise on this front… and while I doubt it would have ever happened, any self-respecting dealmaker on Yahoo!’s side would have asked for this. This, in fact, could make YHOO’s shareholders consider remaining neutral and independent, though any alliance with search king Google makes Yahoo! less independent.
- Most importantly, YHOO is worth less relative to GOOG in MSFT’s eyes. In 2005, I was VP of Ad Sales for the largest men’s lifestyle publisher. Our bigger peer in the broader men’s publication space (one focused on video games and not lifestyle) wanted to buy us. As talks persisted, they eventually asked us open up our kimono for them to audit and confirm our traffic etc. But by doing so, they got all of the information in the world and inbound and outbound traffic and where users spent time etc. After that month, they got access on our business’ sweet spot. They could have acted in bad faith and used that info to invest and compete with us. The point is: Google will now use that 3% of YHOO’s inventory to get all of the data in the world on YHOO
- This is a key, key issue: Microsoft could in fact make a direct tender to YHOO shareholders and say “if GOOG’s deal with YHOO goes forward, our offer drops by $1.” That is “only” $1.2B in the purchase price, but symbolically investors will fear it enough to pressure YHOO.
- Finally, MSFT is showing up on YHOO’s doorsteps viewing itself like a knight in shining armor… who just got pooped on by YHOO. Sooner or later, they’ll shove the carrot where the sun don’t shine and hit YHOO with a stick.
This might have been the tipping point.
Where was this Jerry Yang from 1995-2008?
Jerry Yang is on the verge of losing his company. Well, it’s technically shareholders’ company, but Jerry does not think so. From Feb 1 2008 until about a few minutes ago, I thought Jerry was wrong in not caring about what his shareholders wanted (to accept MSFT’s offer), but seeing him on the verge of securing a potential exit by way of a merger with AOL, I think that I actually understand Jerry. You know what, sure, he sold a massive chunk of his company to the public… but so what? It’s his company until the Board or shareholders take it away from him.
And so far, neither the former nor the latter have dared do that… so guess what, if Jerry will try to maintain independence from MSFT, then so be it. It’s his right. Sure, it’s not really adhering to his fiduciary duty to shareholders, but welcome to the real world. If you don’t like it, go teach a class at your favorite B-School.
In the end: That’s what business and entrepreneurship is all about. Jerry Yang was MIA from 1995 (when Yahoo! hired Motorola (MOT) executive Tim Koogle) to February 1 2008. Even when Jerry took over for Terry Semel and launched his 100-day crusade to no-man’s-land, I don’t think anyone thought Jerry had a clue… but I must say… say what you want about his not honoring his fiduciary duty, this Jerry I like: a fighter, a resilient never-say-never fighter.
I like that. I remain long on Yahoo (about 12.5% of my stake as at Feb 1 2008), but even if I owned 100% of what I owned two months ago, Jerry is reminding me why I decided to start a company myself… though admittedly, he’s also reminding me why owning stock in a publicly-traded company plays second fiddle to being your own boss.
Mind you, seeing him go through this reminds me: don’t ever lose control… and don’t sell out unless you have to, I mean absolutely have to.
This is finally getting interesting. When I decided to keep some shares, I did so for the same reason a bettor keeps some money in the game: for entertainment value. I must admit: Jerry’s providing us some of that now, finally.
Here’s to hoping he doesn’t lose his mojo if and when he pushes MSFT back. Enjoy it while you can, cause a victory against MSFT will translate to a surefire lawsuit from investors. But you can worry about that in the morning… tonight, we torch the campus!
