Yahoo Goes Scorched Earth

I can’t say neither side is throwing punches any longer in epic fight over what’s left of Yahoo (YHOO). Microsoft (MSFT) and Yahoo are done, for the most part, with sternly worded letters.

Yesterday Yahoo made two announcements/leaks. First, that they were very close to agreeing to terms that would combine Yahoo and AOL (TWX) as an alternative to the Microsoft deal. And second, that they will run, ahem, a two week test of Google Adsense on 3% of their Yahoo search results page, instead of their own ads.

Microsoft responded that the Google (GOOG) deal is a precursor to handing over de facto monopoly power of the search advertising space. And they threw their own curve ball as well: News Corp. has switched teams and is now in Microsoft’s camp.

The formal entry of AOL into the discussions suggests Time Warner wants to offload the asset soon. If a Microsoft/Yahoo deal goes though, the only realistic suitor for AOL is Google, and that gives them little negotiating leverage.

The News Corp news is more interesting. In a move reminiscent of the Italians switching sides in World War II, they’ve abandoned their Yahoo soul mate for a more compliant Microsoft. They put in a bid for Yahoo in February (more), which was reportedly countered just a couple of weeks ago. My guess is the counter offer wasn’t very interesting, so they switched sides. You gotta love News Corp., they’re always there for you when they need you.

But by far the most interesting news is the Yahoo/Google alliance. Industry insiders still question whether regulators would allow the deal, but Yahoo’s been whispering around Silicon Valley that a business partnership with Google, as opposed to a merger, would stand a much higher likelihood of getting approved.

What Is Yahoo’s Strategy - Scorched Earth, Or Knife To The Nose?

Yahoo has put costly severance plans in place to both retain employees and make themselves a less attractive acquisition candidate. But top talent has left anyway, and just about everyone at Yahoo seems to be looking for a job (even execs I’ve spoken with). Meanwhile, the Google deal shows they would rather give up the search marketing game, their biggest asset, than become part of Microsoft.

Their actions, which appear to be based on destroying their market value as a counter to the Microsoft bid, benefit neither their stockholders nor their employees. And by setting up Google as the only real option in search marketing, they are disrupting what little market balance and competition exists in that space today.

I can’t decide if nose knifing or scorched earth is the best way of describing what they’re doing, but I have to ask: If Yahoo “wins” this epic battle with Microsoft, will there be anything left at the end to celebrate over?

It’s time to end this thing before Yahoo ends itself. I don’t care if they throw AOL, MySpace, and half the rest of the Internet into the deal along with Yahoo. But the health of the Internet demands a counter balance to Google. Yahoo-Microsoft, given the current state of things, is the only reasonable outcome.

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Comments

[Phil G.]

Why do you say that Yahoo's greatest asset is search? Isn't its massive page views its greatest asset?

[Mike Cooper]

I am a little unclear what Microsoft gains with its offer. Yahoo's search engine is only marginally better rated than Microsoft's. Yahoo has better content, but that is one of the easiest things to improve assuming you have the intellectual talent working in the trenches for you.

And there's the rub. Yahoo has got it, but every indication is that Microsoft will lose it if/when it takes over. The IT culture wars, in which Bill Gates plays a 4-eyed Darth Vader, is alive and well there. I can guarantee you, that Yang's maneuvering, however anti-shareholder, is getting rave reviews from the employees.

I forsee Microsoft winning this battle but winding up with a $40+ billion empty shell of a company. How can they not see that?

[WAKEUP]

"I forsee Microsoft winning this battle but winding up with a $40+ billion empty shell of a company. How can they not see that?" - - - ANSWER: Anyone, repeat, ANYONE other than "Dance Monkeyboy" Ballmer WOULD see this. It's all ego, with this narcissistic child / fratboy. Ballmer will drive MICROSOFT, itself, never mind Yahoo, into the scorched earth, rather than lose his battle to see who is the biggest ego-freak. After all, he has his fellow-narcissist fratboy buddies to answer to, the next time they play golf.

[bearfund]

Seems to me that Yahoo's employees and shareholders should accept the deal, sell the MSFT they get, and walk out the door to form a new company the day the deal closes. That's what at will employment means; the flip side of being able to hire and fire at will is that if you are perceived as a miserable place to work and you buy a company that has very little in the way of tangible assets, your purchase will evaporate right out of your hands. That's what should happen here, not some sort of suicide pact with the shareholders.