Sunday, November 09, 2008

Yahoo Microsoft Drama

I have watched this closely since the beginning of Microsoft's unsolicited offer in early 2008. (I probably should have kept up with it by blogging about it). The latest news is that Yahoo's advertising deal with Google is lost as Google has decided it is simply not worth the DOJ trouble. As a result, Jerry Yang, who walked away from Microsoft's offer of $33 a share is now declaring Microsoft's best move is to buy Yahoo.

My opinion was always that Yahoo should have sold. As a search marketer, I saw no strength in Yahoo. While Yahoo actually commands strong usage outside of the US particularly in Asia, it is not enough to keep Yahoo competitive; especially against Google.

While MSN, or Windows Live, is FAR from competing with either Google or Yahoo, a merger of the 2 companies would make more sense. Mergers, of course, is a strategy for weaker parties to join together to better compete with a larger "foe". In this case, Microsoft and Yahoo made sense - again, from a search marketer's perspective.

But from a personal perspective, I love this whole drama. The drama of this whole affair is fascinating to me and I find incredible enjoyment in the way this story plays out. I imagine that this kind of "cult of personality" - Yang vs. Ballmer - was what European politics was like during the Middle Ages until the 20th century. Between all the aristocratic intrigue, royal families from one country ruling the other, and with the lives of the common people in the balance, the European days of yore seems to be playing out in Yang vs. Ballmer.

After Google walked away from the deal with Yahoo, Jerry Yang is interviewed by John Battelle (read the interview here)

"To this day, I have to say that the best thing for Microsoft to do is to buy Yahoo. I don't think that is a bad idea at the right price, whatever the price is, we are willing to sell the company...We were ready to negotiate, we wanted to negotiate a deal, and we felt that we weren't that far apart. But at the end of the day, they withdrew and they since have been very clear about not wanting to buy the company."

To me, to say this after Yahoo walked away from Microsoft and after Google walked away from Yahoo, is severely losing face.

Maybe I'm just plain old fashioned, but I think even in this modern 21st century, people are people and saving face is important.

There's a part of me that sees Yang as having been tragically forced into this position. Terry Semel recklessly ran Yahoo long after his purpose was served (which was to help navigate Yahoo and keep it afloat after the Dotcom Bust of 2000-2001). During the good times, henceforth, however, Semel made Yahoo into a joke and lost out big to upstart Google.

Semel was finally replaced by Yang in 2007 but the damage was already done. In fact, Semel had survived a previous shareholder meeting in early 2007 and was not removed from his position even though shareholders had the opportunity. But by mid-2007, Yahoo had enough and the reigns were given over to co-founder Yang.

But Yahoo is a big ship and turning it around is not easy with 6 remaining months in 2007. The economy had already slowed down and in early 2007, foreclosures and the credit squeeze already began to rear their ugly heads. Yahoo's stock, YHOO, began to drop as well. In August 2007, the market suddenly dropped and many stocks lost value - including YHOO. By the end of January 2008, YHOO was trading below $20.

Talks of a MSFT buyout helped skyrocket YHOO's value to nearly $30 a share. When the deal fell through, YHOO dropped to below $25 a share as analysts had expected.

Meanwhile the economy continued to grind down, jobs lost, foreclosures and credit squeeze took its toll and speculative oil futures trading drove oil to $180. The economy was extremely strained helping to make things volatile for YHOO.

Then September and October 2008 came - "Armageddon".

By now, everything seemed to be at a standstill and the news from Wall Street's failures after Bear Sterns (earlier in 2008), Lehman Brothers, the banks, and AiG just made things worse. The world economy began feeling the chaotic butterfly effects too.

Which finally leaves us here - November 5. After long talks about Yahoo and Google's advertising deal, Google finally walks away. Some analysts think this was Google's intention all along - to simply drive a wedge of enmity between Yahoo and Microsoft. At this point, with Ballmer saying no we've moved on, it sure feels like enmity between the two CEOs.

But, as I wrote earlier, I almost feel Yang was forced into this position. I think he did believe he was acting in the best interest to ask for $37 a share from Microsoft. But it was a bad bluff and Microsoft called it. Then, having no recourse and no real direction for Yahoo, Yang turned to Google. And when that fell apart, Yang was left with no additional option for Yahoo.

Yahoo is in the middle - unable to move forward alone, unable (and justifiably unwilling) to move backward. Clearly, Yahoo cannot go it alone - it has no real innovation to effectively combat Google to win more user market share. MSFT has nothing to lose because it is so dead last compared to Google and Yahoo. It is in the position to keep sniping at both "giants".

But while I almost feel a little sympathy for Yang, I think he should have made a business decision and taken the deal. It made sense from a business perspective. It made sense from a search marketer's perspective. And it makes sense from a shareholder perspective.

...well, I at least am not a YHOO or MSFT shareholder.

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