Something's Fishy About This Yahoo-Google Deal

Posted by: Rob Hof on April 17, 2008

Oh, please. An initial test of outsourcing Yahoo’s search to Google showed positive results, according to an account in the Journal. Hold it; didn’t that test just start this week? Wasn’t it supposed to go two weeks? Didn’t we already know that Google ads work better than Yahoo’s?

Yes, indeed. That’s why I’m a little suspicious of the “people familiar with the matter” who are saying this could lead to a wider deal between the two companies. It’s certainly in Yahoo’s interest to show Microsoft it has another option, and it’s certainly in Google’s interest to throw a monkeywrench into any Microsoft plan.

But we’re supposed to believe that after Yahoo spent years battling Google to little avail, after having multiple chances and much Wall Street encouragement to outsource its search ads to the leader, suddenly Yahoo and Google are now going to be best buddies? After a couple of days of ad tests?

Supposedly, they’re even plotting to avoid regulatory problems by limiting the deal to “specific groups of search queries or regions.” If the point for Yahoo is to show how much more money it could make outsourcing search ads to Google, that makes no sense. Even the $1 billion a year that Citigroup thinks an outsourcing deal could add to Yahoo’s cash flow probably wouldn’t sway Yahoo shareholders staring at a $45 billion Microsoft buyout offer, so why would some smaller portion of that sway them any more?

Of all the back-and-forth negotiating tactics we’ve seen in this overlong Kabuki dance so far, this one takes the cake. Maybe it will help Yahoo ultimately extract a few more dollars a share from Microsoft, and if so, more power to them. But these moves are getting so transparent that you have to wonder how effective they are.

Reader Comments

Blowski

April 17, 2008 7:46 AM

Totally agree - I was thinking the same thing when I saw it.

Just the extra traffic Yahoo must be getting from people testing the Google queries is enough to boost it.

How can you judge success before the advertisers have had time to judge the difference in ROI, and thus whether they would stick with it?

Gene

April 18, 2008 1:55 AM

Yahoo is acting so pathetic it isn't even funny anymore. Google will take all the market if they do this and Yahoo will fly even faster towards zero.

AOL + Yahoo is so funny as well. Multiple typical users I have interviewed have said, "AOL still exists?" Why not add CompuServe? Hahahah!

Microsoft has the cash and compelling need to complete the deal. They offered a 60% premium at the time of the bid. And Yahoo has been steadily and rapidly trending mainly down for years after many promises of former glory (think 1997.)

Give it up Yang. Just take your billions and go try something new.

kripken

April 18, 2008 2:19 AM

Yahoo doesn't suddenly like the Google outsourcing option. It just hates the Microsoft merger more, there's no mystery here.

Also, I see nothing suspicious about the short time period. Getting a representative sample of searches and revenue from them can be done in hours, let alone days. Certainly enough to see trends. The amount of searches is tremendous.

Another point, comparing $1B/year to $45B payout is a bit odd. These are apples and oranges. If $1B/year + some other moves sends Yahoo's stock well above what Microsoft proposed, then that is worth more to investors than the $45B.

All of that said, I do think there is a chance that this will end up being just a tactical maneuver to get Microsoft to raise its price. Certainly this is one of the reasons for the Google outsourcing test. However, it isn't the only reason. It's a good move both because it puts pressure on Microsoft *and* opens the possibility for a deal with Google, which could be very lucrative. Yes, both deals are disappointing for Yahoo - it means scrapping a lot of what they built. More so in the Microsoft option, but certainly in both.

Mackey

April 18, 2008 8:50 AM

You are both right, but what is in it for Google to raise the price Microsoft is willing to pay? Yahoo would be able cancel the outsourcing deal whenever they wanted, so there has to be more to this story than the public knows which should be no surprise to people familiar with Google.

john

April 18, 2008 8:51 AM

Could not agree more. Yahoo management is showing why it was never a threat to Google and why they will never beat MSFT's offer. They are amatuers playing with professionals. If this could be an boxing match, this is all the pre-match hype... when the match actuall starts (April 26) it will be knock out in round one - to MSFT.

RA

April 18, 2008 10:08 AM

I am surprised when people talk of the premium since the deal was announced. Micropoly is behaving as a child. Do you walk into a store and demand to pay $50 for a $100 priced Microsoft Office software ? If you will not get products at a discount, why should'nt buying companies be different....If it doesnt want to spend money, it can sit at home....Why make unnecssary drama....Those Yahoo shareholders who want to sell, why don't they do it on the open market now...

Dave

April 18, 2008 11:33 AM

@RA

Your analogy makes no sense. A better analogy would be that MSFT said they would pay $160 for something priced $100. Of course the store owner (stockholders) should sell.

Vince1

April 18, 2008 2:38 PM

30% of Yahoo's shares changed hands on the day the merger was announced. This is clear indicator that those shareholders think the deal is fair.

MSFT offer gave Yahoo's shareholders 60% premium over the market price on the day before the offer was announced, so the talk of buy something that costs $100 for $50 is total nonsense.

That being said, it is clear to me that Yahoo's top brass is totally opposed to this deal. They refused it out right (probably because in previous negotiations with MS the price was higher), without giving it fair consideration. It appears to me that since day one they set on searching for alternative and they'll do anything at this point to keep Yahoo independent.

No one is using AOL anymore, Yahoo is loosing appeal rather quickly too. Such a deal will not be enough to persuade shareholders. However, if they can use some of Google's thunder, they might be able to pull it off.

Thats what this is all about. It is PR stunt to convince Yahoo's shareholders that there is alternative to MS. Did someone expect that the Google tests will come out with negative results ?
I don't think so.

Unfortunately, they need results rather quickly, before the earning reports come out and the offer deal line passes. So they set those "tests" and magically got results back in under one week.

Anyone vaguely familiar with web site statistics is aware that different target groups access the site in different times, on different days, etc (stay home moms for example might do shopping between 2pm and 4pm, while college students might play games between 8pm and 12pm ). With less then a week of testing it is pretty clear to me that they could not possibly have complete, statistically significant results.

It is fishy OK.

jhr94024

April 22, 2008 11:02 AM

Yang is an idiot.

hooper

April 22, 2008 12:22 PM

How is offering a 60% premium per share the same as demanding a 50% discount? The MS offer is like going to the store paying $160 for a $100 product and saying keep the change.

karmacoma

April 22, 2008 6:40 PM

Actually it's like going into a store and offering to buy the item at 60% above cost because you know the MSR price is $100. Even though the item is marked at $200. Yahoo has the right to ask whatever price they want. Just because my home has a set market value doesn't mean that I have to sell it to anyone offering to buy it for that price. It's free enterprise.

Tazdvl

April 23, 2008 10:46 AM

For Microsoft to buy Yahoo in a hostile takeover is really not the best thing. It is going to take all of this year and almost the first 2 months of next year, even before MSFT is able to control Yahoo. Let alone run it for a profit. And, Google is going to get bigger and better in this time. Before anyone calls Yang an idiot, they should think that Yahoo is his life and were they in Yang's place, they would do the same.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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