Microsoft Circles Back to Yahoo With New Offer

Ian Lamont writes "Microsoft has come back to Yahoo with a new offer that would involve it buying part of Yahoo. No details have been released, but sources told the Wall Street Journal that part of the arrangement would involve Microsoft selling display ads next to Yahoo search results. No word yet on how this will impact Carl Icahn's proxy war with Yahoo's board."

How's this going to work??

[BlueStile]

Obviously, if MSFT is interested in "Yahoo Search" as an effort to mount a challenge against Google, it isn't really interested in Y!'s technology, but rather its traffic. Obviously, that traffic flows mostly from visits to www.yahoo.com.

Now, if MSFT, say, goes through and buys just the Yahoo Search division, it sounds like Yahoo is free to go become a content/media/etc. company free of worrying about Google and search.

My question: who gets domain over the homepage, Yahoo.com? If Yahoo retains Yahoo, but MSFT owns the little search box on the page, then who decides how prominently the search is featured on the homepage, how it is integrated into the content, etc.? Yahoo would have incentive to make the content front and center, and who cares about the search box...

It might be hard for MSFT to integrate all of Yahoo, but it's even harder for MSFT to integrate part of Yahoo...

I still expect a full acquisition to occur. Whether its $32, $33, or $34 or something else, we'll see...

Ichan Will Force Yahoo's Hand

[CodeBuster]

As soon as Carl Ichan got involved it was almost a forgone conclusion that Microsoft would be back to deal with Yahoo given Ichan's reputation for bringing together bickering parties in merger deals which deliver value to the shareholders (including Ichan). I had previously predicted that Yahoo would be able to resist a takeover offer from Microsoft (that was before Ichan got involved and started buying millions of shares) but even then I thought that it was a bit strange for Yahoo to turn down a 70%+ premium on their share price (initial offer of Microsoft) to be acquired (a good price by almost any recknoning, irrespective of the long term outcome of the merger). The onus will now be upon the Yahoo board to detail their plan to the shareholders and prove that they can offer a better value with a Google partnership (which seems to be their proposed direction) than Ichan (who will push for resumption of talks with Microsoft in light of a limited alternative pool of qualified bidders) can with a resumption of talks and possibly a sale to Microsoft. Even if Yahoo manages to hold off Ichan, they would really have to outperform in the next 3-5 years to beat the upfront 70%+ premium that they originally turned down to remain independent and the prosepct of a protacted duel with Ichan will make that independent stance even tougher to justify in the months ahead (possibly allowing Ichan to buy up more battered Yahoo shares and strengthen his hand even more).

What's the MS kill list for this year

[pembo13]

ISO,OLPC... soon Yahoo? Also, who is paying for all the Novel-Microsoft ads all over the internet?

Re:Web advertising

[drawfour]

I completely agree. I ask my friends "when was the last time you intentionally clicked on a web ad, and then actually bought something as a result?". They can't seem to recall. I'm sure there is something to be said for getting the product name out there -- somehow, subconciously, people will remember their product name, but I doubt it's worth that much.

I keep waiting for companies to figure this out, but online advertising keeps growing. I don't get it.

Re:Web advertising

[SuluSulu]

Because regardless of how many hits you get, if you don't tell people that your product exists then no one will ever buy it, and advertising on TV is too expensive, especially, when you are trying to reach a geographically diverse audience.

Re:Web advertising

[rrohbeck]

That's just your and your friends' nerdiness.
A good consumer will click on anything shiny, just like (s)he will sit through 20 minutes of ads per show, and buy something based on the ads. Marketing folks aren't dumb - they're highly paid and rating systems show what works and what doesn't.
I don't know if comparable rating systems exist for web advertising though.

Re:Freedom a la Microsoft

[Anonymous Coward]

Basically you don't understand business. If you love freedom and democracy, then instead of irrationally hating Microsoft you should rationally aknowledge that Yahoo sold out to the public to make money in trade of freedom. They also had the freedom to go to other companies for a better offer, which they tried to do, and failed. Do not confuse their failure to retain private ownership or to find a better bid as a lack of democracy. Rather, what we see unfolding is truly the result of freedom (except mayve anti-trust concerns limiting Google's ability to bid).

Re:Web advertising

[Jugalator]

That's just your and your friends' nerdiness.

Not really, my parents don't do that either, and I doubt many others also prefer to buy from online shops they are aware of since earlier. It's a trust thing, and people aren't as stupid as you think. Maybe in the early 2000's, but even my mom is reasonably seasoned as an Internet user these days.

So I think it's not specific to nerds to not buy, but rather a special group of ad-buyers that buy.

Re:Web advertising

[mrcdeckard]

you certainly are missing the big picture, but i'm sure you're not the only one. the long and the short of it, is that google adwords *work*. maybe not on you and your friends, but in the big picture, they do. microsoft understands this.

google hit the advertising "holy grail" with adwords -- although no one has said/realized it, adwords are what the marketing industry has been wishing for since freud's nephew invented it -- specific and contextual advertising.

before adwords, advertisers mostly had to throw a bunch of shit at the wall and hope that some stuck. billboards and subway ads are a good example. anybody and everybody sees that ad, so if you have a niche or specific market, you have to advertise to 10k people to get to your 100.

radio and newspapers are a bit better -- if you want to advertise your new cat food, you can call the publishers of "cat fancy", and hit closer to the bulls' eye.

adwords allow advertising to a demographic of one. if you sell gloves that are missing the middle finger on one hand (for people who've lost that finger), you could theoretically dial in your adwords to catch that person.

adwords and gmail make it even more powerful. now, instead of catching people who are actively searching the web, you can just filter their email.

i use gmail, and i have actually clicked on a few adwords because i had sent an email to someone asking if they had xyz for sale, and the adwords threw up a link to an online store that did.

adwords are NOT banner ads. they're specific, they're not obnoxiousm, and they work. this is the piece of the pie microsoft wants to in on, and they're trying to acquire yahoo (at least their traffic) to do it.

i may be going too far here, but if they don't get yahoo, they're going to lose out on the (consumer) desktop in a big way -- is there a part of their business that isn't slipping?

mr c

Why?

[Nomen Publicus]

I'm still not convinced that we know why Microsoft wants Yahoo. Is there nothing else that Microsoft can do with $40 billion? Is there no Microsoft service or product that needs more investment?

Re:Web advertising

[Korin43]

You're missing the point. These are still people YOU KNOW. There are people who click on ads, people who think the blink tag is useful, people who pay AOL for their dialup, etc..

Re:Why?

[religious freak]

That is what I wonder too.

I am not an anti-MS troll at all, but I do think this highlights MS weakness. Perhaps the entire company did revolve around Bill, and with him stepping out more and more, it seems to directly correlate to the loss of innovation and competitiveness at MS. They were not able to turn themselves on a dime to adapt to the Internet as I believe they needed to about 10 years ago. Google is consistently coming up with AMAZING stuff that MS isn't even close to matching (have you actually tried to use your hotmail account lately?)

It's getting very obvious now.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Re:How's this going to work??

[DJProtoss]

it didn't drop all the way, and you wouldn't expect it to, since it was pretty likely (but not certain) that MS would be back.

Ad Crumenum Fallacy

[PinkyDead]

WRT Mr Icahn...

Just goes to show that just coz you have a shed load of money, doesn't mean you have the first clue how you got it.

Maybe the board of Yahoo actually know what they are doing, because Microsoft seem to want this so bad, it hurts.

Re:Web advertising

[Graymalkin]

Advertising is most effective when it is relevant to the person seeing it. Web advertising was like magazine advertising for a long time. You offered got paid a very small amount of money for a unit of space for every visitor to your site, more if they clicked and ad and even more if they actually bought something. In order to get ads on your site you as the webmaster would fill out a form telling the advertisers what sort of content you typically posted. A video game website would say their content is about video games so advertisers would display ads relevant to people reading about video games.

What Google (and others) have done is take that process a step further and figure out automatically what ought to be relevant to each individual website visitor. If someone buys AdWords for an upcoming game and someone writes about that game on their website ads for that game will appear specifically on that article. The actual content of websites is now valuable to advertisers, not just the number of ad pixels on the screen. While video games might be relevant to the readers of Joystiq and an for a particular game shown to a Joystiq visitor reading an article about that game is super relevant. Someone can not only read about Super Deluxe Fun Time Solitaire but buy it right then and there.

Besides anonymous targeted advertising Google, Yahoo, and Microsoft all have the ability to mine their millions of user account profiles to target ads specifically for individuals. Microsoft has linked up Passport accounts with their various MSN services, Hotmail, and XBox Live. MSN can thus correlate tons of online behavior and sell individual behavior to advertisers. They know what games people are playing on XBox Live, who their MSN Messenger and XBox Live friends are and what they're playing, things they've bought on MSN Shopping (or their affiliates) recently, and what their recent browsing behavior is (to sites with MSN advertising), and what sort of e-mail they're getting. With all of this they can make some pretty good guesses about what that person might buy in the immediate future. If they're browsing Joystiq and have been playing a lot of Halo 3 and were searching for Quake Wars reviews the next ad they might see is one for Quake Wars. Microsoft wants Yahoo because that's tens of millions of more user profiles to mine for advertising data.

Not so bad

[acb]

As long as Yahoo gets to keep its open technologies (the Flickr API, Pipes, &c.), that's fine with me. Let Microsoft spend their cash reserves on a second-tier search engine.

Having said that, it's probably still prudent to back up your Flickr and del.icio.us accounts, especially if you don't use Windows.

Re:Web advertising

[Anonymous Coward]

You're missing the point. These are still people YOU KNOW. There are people who click on ads, people who think the blink tag is useful, people who pay AOL for their dialup, etc..

Stop being such a pretentious ass. Paying attention to ads isn't a sign of being stupid. Every once in a while, I will see an ad that lets me know of something I didn't know existed.

If you weren't so cocksure that you knew everything already, perhaps you could derive some benefit from targetted ads. You probably use blocklists to block even unintrusive ads, though (lol advertising is TEH EVIL).

Re:Web advertising

[gtall]

I think there is a difference between a sponsored link and your generic web ad that one might get on site frequently visited for information and that gets updated daily like a news site. Most people probably ignore those out of necessity since they visit the site too often to waste time on the ads.

However, there have been times when I've been interested in some item, like a particular kind of pen I'm partial to, and Google will return retailers' links. Granted, these are not your typical web ad but more of a simple (paid for) link. But I have clicked on them simply because I want to buy the product.

Gerry

Re:How's this going to work??

[Anonymous Coward]

I doubt the price would fall all the way back. If the MSFT deal falls through, YHOO remains for sale and is likely to be bought by someone else. If for no other reason, a defensive ploy to block MSFT might fit somebody's corporate agenda.

Totally agree on MSFT playing catch-up. This acquisition is simply a way to buy their way into the search-based advertising market -- having failed to go it alone.

The trust factor of MS has to be considered. Search engines are not THAT tough to build. Technologically, it's within their grasp. But people just don't WANT to do business with MS. Without a captive market, customers and would-be partners take their business elsewhere.

Their most successful/innovative product is XBox, and they lose money on every single one that ships. The joke of it is, by the time they reach the break even point it will be time to upgrade the hardware and start losing money again.

On the desktop, I predict Apple will do the best job capitalizing on the Vista meltdown. Linux will rule the cheapie subnotebooks and everything below that in the food chain, along with the server world. MSFT will be stuck in the middle, sandwiched between Linux on the low end and Apple on the high end.

I can easily imagine a world where all you need is a cheapie semi-disposable notebook to connect up to some relatively slick server-based apps, with Linux running most or all of it end-to-end. Macs for high-end client side stuff, with MSFT relegated to the recycle bin.

This is a tough spot to be, just ask GM and Ford. They are both stuck between Koreans on the low end of the market, with Japanese and Germans in the luxury sector. They won't be undercutting the Koreans on price or overtaking Lexus/MB/BMW on luxury appeal anytime soon. Meanwhile, they have just enough market share to the point where they can't abandon what they have in the effort to take away market share from anyone else.

Re:Web advertising

[Colonel Korn]

I think there is a difference between a sponsored link and your generic web ad that one might get on site frequently visited for information and that gets updated daily like a news site. Most people probably ignore those out of necessity since they visit the site too often to waste time on the ads.

However, there have been times when I've been interested in some item, like a particular kind of pen I'm partial to, and Google will return retailers' links. Granted, these are not your typical web ad but more of a simple (paid for) link. But I have clicked on them simply because I want to buy the product.

Gerry

When you want a particular product, go to its website or a website of a supplier. NEVER click on ads of any form. Doing so just encourages more ads. If there's something you absolutely want and there's a text ad sitting there taunting you, go search for it. DO NOT CLICK THE AD.

Re:Ballmer is crazy

[Colonel Korn]

Ballmer is an executive leading a company. The job of such a person is to immediately make a large and costly change in the company. The change itself is determined almost at random - these people aren't particularly good at analyzing this sort of thing. Just take a look at the success rate of this sort of project taken on by a company's new CEO. Sometimes it works, and a bit more often it doesn't. It's just a roll of the dice.

The point is that if it doesn't hurt MS, Ballmer comes off looking good. He did something that shaped the industry, and it didn't fail. If it turns out great, then Ballmer is a visionary. If it fails miserably, he takes his massive fortune and gets a job either with a lower profile company (ooh, our new CEO is the guy who just ran MS!) or with a politician (like Carly Fiorina and McCain). They don't know what will work going in, but they win no matter what. They excel at one thing: advertising themselves.

There are exceptions. Bill Gates, no matter what else you say about him, wasn't a wild gambler. He cared about the company itself, for obvious reasons. Ballmer, though, is no Bill Gates, and to him MS is a company, not an identity.