What the Failure of the Google-Yahoo Deal Means

Posted by: Spencer Ante on November 05, 2008

So the Google-Yahoo search deal finally fell apart. It’s not terribly surprising. From the beginning, I said that this deal was very problematic, probably anti-competitive, and would raise the ire of government regulators.

Google read the handwriting on the wall and realized the deal no longer made sense. So it pulled the plug this morning.

Yahoo! is clearly the big loser here. They don’t get hundreds of millions in additional revenue that the deal would have generated. Once again they do not have a strategy for turning around the company. And with the economy getting worse, the online display ad market is likely to deteriorate for at least a few quarters, and it may even see negative growth.

“Time is not on their side,” says Dave Morgan, the former chairman and CEO of Tacoda, an online ad network that was sold to AOL in September of 2007 for a reported $275 million. “The longer they wait the worse their numbers get.”

So why is Yahoo’s stock up 6% when the stock market is down 3% today?

Clearly, the market thinks that the failure of the Google deal means that Yahoo is takeover bait again. Problem is, they are running out of dance partners. “It’s a game of musical chairs and the music is stopping and there are not many chairs left,” says Morgan, who left AOL in March.

Google can’t acquire them. Microsoft is probably leery of re-engaging with Yahoo as long as Jerry Yang is running the show. That leaves AOL. It wouldn’t be a merger of strength but it may be Yahoo’s only option at this point—unless the board boots Jerry and invites Microsoft back to the table.

And who wins? Microsoft is the big winner here. Either it gets to buy Yahoo on the cheap, or it can steal market share from Yahoo while the company continues to flail and dither.

“All of this stuff creates an extraordinary distraction for people who buy and sell advertising,” says Morgan. “Who wants to cut a big deal with Yahoo if they have to unwind it a few months from now?


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Reader Comments

c.l.shannon

November 6, 2008 10:59 AM

its simple - yang has to go.

actually, its almost self-evident - yangs patholigical business acumen is irresponsible. yang passed on a fat $33 dollar a share deal and now looks a $14.00 a share future losing his investers a ton of money. while yang was ying-yanging around with this fake google deal yahoo lost a lot of talented employees.

Leon Fost

November 6, 2008 11:48 AM

The truth of the matter is: even if the Government had allowed the deal,it would have only bought Yahoo a little time. The deal itself would have cannibalized Yahoo and killed what little viability Yahoo's search engine had. Advertising client would figure, why advertise with Yahoo when we can go direct through Google.

Joe Nguyen

November 6, 2008 12:09 PM

"Microsoft is the big winner here." ... mmm. maybe... not so sure though...

"Either it gets to buy Yahoo on the cheap, or it can steal market share from Yahoo"

Yes if it gets Yahoo, but if not, then they are no better off than currently. Microsoft can't steal share from Yahoo anymore than they can steal shares from Google. If yahoo flounders, Google will benefit first and foremost.

pk de cville

November 7, 2008 04:24 AM

This may have been Ballmer's Plan B, all along. If they bid and lose, and prevent any goog/yhoo partnership than maybe that's all that's needed to eliminate a major competitor. Ballmer will be back in the next year picking off talent and pieces.

The truth is, this is what msft really gets - cutthroat business strategy.

Unfortunately, what they don't get is: innovation. And they need to learn true innovation ala iPod type where they come to market with their own big idea and innovate something big like an iPod or an iPhone.

I wish them luck.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, 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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