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??

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...

Re:How's this going to work??

It's like the vulture circling back to the corpse, except in the case of Microsoft it's the old joke: "Patience, hell. I want to kill something."

Re:How's this going to work??

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

I was just wondering... Yahoo's stock fell after Microsoft withdrew their original offer. Did it slide all the way back to pre-acquisition-attempt value or did it remain above that?
I knew immediately that Microsoft withdrew only to reduce Yahoo!'s value, but if Yahoo! decide to hold out again, the tactics may prove to be disadvantageous to Microsoft.

All in all, Microsoft is playing catch-up instead of innovating. Somehow, I think they will dominate the search market a year after Linux starts dominating the desktop market.

Re:How's this going to work??

YHOO Stock Price (Approximate) Pre-Offer of 31: 19 Immediately after: 30 After initial rejection: 28ish After MSFT walks away: 24 One day later (and since), rumors swirling: 27 After MSFT returns to table: we'll see tomorrow!

Re:How's this going to work??

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.

Web advertising

Maybe I'm the only one missing the big picture, and in turn, the boat on web advertisements. I just don't get it anymore. It seems like such a waste of money to put up web ads when the average web user simply ignores them and the advanced users block them completely.

Media companies have grown huge on advertising, but they have also spent huge sums to produce and purchase programming that attracted viewers. Online content is nowhere nearly as expensive to produce, and the target web audience is much smaller than TV audiences. I just don't see how online advertising can carry a company much farther than they've already come.

I just don't get it. It seems like anyone trying to sell online advertising space is trying to squeeze pennies out of sheep. For all the effort going in to providing these online advertising spaces, I just can't imagine the payoff being that great.

Re:Web advertising

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

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:Web advertising

I wrote a longish reply about this (below). Sure, there is a component of this that is to augment microsoft's web based advertising. No question.

What is really the motivation for this transaction is that Microsoft got caught with its pants down in an emerging field. Again.

A new Internet is developing. (No, really. Hear this one out.) An Internet that is centered around your location (your GPS coordinates) and where you currently are, and what is around you. If the Internet, to date, brought you access to the world, then the next generation of Internet services will bring you access to your community (or will bring your community access to YOU!)

Think of all your data, all your requests, everything, but tagged with GPS coordinates. What fun services can you provide? GPS + Flickr = location and time based picture sharing. Went to a concert? Easily get photos from other people who attended the same event. See? Internet + GPS = fun.

Guess what also can be location based? Yup. Advertising. I won't get into the whole host of ideas here (online coupons, business search with advertising, favored search results, etc etc) but there is a great opportunity here. If people are currently using the Internet to market to the nation/world, then perhaps a different group of people will want to use the Internet to advertise to people in their own community.

For example, a mom-and-pop sandwich shop. Trying to find a good sub shop to go to for lunch? The mom-and-pop business can pay for favored search results. Perhaps dangle a digital coupon to entice your business. A completely different advertising customer and advertising model than we have today.

Microsoft totally has its pants down on the local Internet that is developing behind the scenes. Microsoft will be handing out the money all over the place to build the empire that they neglected to develop themselves. One that Google is totally dominating.... and it isn't even out there to the public... yet.

Re:Web advertising

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:Web advertising

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:Web advertising

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?".

2 people, a cat and a dog do not count as an accurate survey.

Re:Web advertising

I bought my car in October based on a banner ad. It was an ad for a car named Honda Fit that I had never heard of before. I wanted a small car that had a decent amount of hauling capacity. So I clicked the ad, read the blurb, then went about doing a lot of other digging about the car, joined a Yahoo group for the Fit, etc, etc.

Re:Web advertising

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

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

Re:Web advertising

It's even better than just the targeting. AdWords + Analytics lets you know what you're getting conversions off of and what you aren't. So if you spend $100 on two ads and one is profitable and one isn't, you can dump your budget into the one that's making you money and abandon the other one.

Relevance to users is great, but conversion tracking is the best part of internet advertising.

Ichan Will Force Yahoo's Hand

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).

Headlines after the merger

Icahn Forces Yahoo To Pick Up The Soap!!

Microsoft Embraces and Extends, Upon Completion Balmer Shouts YAHOO!!

What's the MS kill list for this year

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

Freedom a la Microsoft

Basically Microsoft is using their cash clout to destroy the value of other companies. If you don't sell out when they ask nicely, then they'll just make you a worse offer once the turmoil sets in. Microsoft figures they asked nicely, eh?

Other times when their nice asking was refused, Microsoft just created an approximately equivalent service or product and swallowed the losses until the original company was destroyed. I think Palm was probably the best example of that, though it's quite a stretch to call Windows Mobile even vaguely similar. (Actually, in that case they did most of the damage by using advertising to drive Palm away from their original objectives.)

I love freedom and democracy, and therefore I conclude I must hate Microsoft. Freedom is about informed choices among real options, not limited to choosing today's flavor of Microsoft's poisonous cruft. They should cut Microsoft into four or five pieces and force them to compete against each other and against Linux and Apple. That would give us real choices and lead to much faster development of much better software. It would also prevent any part of Microsoft from getting so fat as to go around destroying other companies and other markets, Yahoo and online advertising merely being the latest targets.

Re:Freedom a la Microsoft

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).

Optimal strategy for Microsoft now

• Wait for Icahn to get a majority on the board.
• Cut a deal with Icahn for the parts of Yahoo they want.
• Let Icahn find buyers for the rest of the assets.
• Profit!

This makes more sense than buying the whole company, which is way overpriced and overstaffed for its revenue. All Microsoft really needs, after all, is the brand, so they can drive traffic to MSN.

Match Made in Heaven!

I've always thought of M$ as a collection of smart, but arrogant yahoos. Now they can bully their way into buying the domain name that fits them best. [flame off]

Why?

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?

Not so bad

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.