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Yahoo Keeps its Enemies Closer
Jerry Yang, Yahoo’s CEO, may be learning something about the hard-driving style of management it takes to go it alone after an attempted takeover, especially if he follows Om’s logic and thinks Yahoo is about more than search. This morning, Yahoo said it will allow corporate raider Carl Icahn three seats on a newly expanded Yahoo board in an effort to settle the disagreement that is taking up so much of the web portal’s attention this summer. This ends the proxy battle, and Yang has brought Icahn in-house despite — or perhaps because of — the trouble he’s caused.
The deal gives Icahn and two other board members of his choosing spots on an 11-member board. Shareholders will choose from Icahn’s previously named slate of potential directors and newly named Jonathan Miller, currently a partner in Velocity Interactive Group and former chairman and CEO of AOL. This will settle the proxy battle Icahn began after Microsoft’s failed bids for Yahoo earlier this year, and make the Aug. 1 shareholder meeting a less contentious one.
However, it’s unclear what this peace offering means for Microsoft, which has expressed interest in doing a deal with Icahn should he gain control of Yahoo. Icahn’s board presence isn’t likely enough to sway Microsoft to put up the cash required to do a deal that Yahoo might sabotage while waiting for the closing. We’ll update the story as Microsoft comes out with its stance.
Oow, Eew, Ouch…Yahoo!
Update: It isn’t quite black Thursday, but it is still a day Yahooligans are not going to forget for a while. First they announced that their deal with Microsoft is off. Microsoft responded with a note of disappointment. Their stock tanked — down $2.63 a share, or 10 percent, for the day. The continuous slide in Yahoo stock — now less than $10 a share than what Microsoft offered — assures that Yahoo has lost almost all of its friends on Wall Street. The greed gremlins like Carl Icahn are only going to increase their attacks on the beleaguered Internet company, and would like to be off with Jerry Yang’s head.
And if that was not enough, the exodus of executives — Usama Fayyad, Yahoo’s chief data officer; Jeff Weiner, executive VP (network division); and Jeremy Zawodny — continues, indicating that in this battle to save itself, the commander-in-chief lost the support of his key lieutenants. (Apparently, a hiring freeze has gone into effect as well.)
Yahoo also announced that it is going to use Google for search and contextual advertising.
The deal is expected to add $800 million in revenue and between $250 million and $450 million in operating cash flow in the first year. As a comparison, Google signed a deal with MySpace for $900 million in 2007 that ends in 2010.
I think this is yet another critical blunder by a company that lost its way three years ago when then-CEO Terry Semel lost interest in the company, putting it on a path of mediocrity. Of course, as one of my gurus once said, in hindsight, everyone is an idiot (or a genius).
And while that might assuage the short-term concerns Wall Streeters have, the company is shooting itself in the face with this deal. It’s almost like knowing your spouse is going to divorce you while you’re standing in the aisle, waiting for the priest. This is akin to Chrysler going to Toyota with its hat in its hand, asking them to sell them engines for their car. I bring this up mostly because on their blog, Google writes:
Toyota sells its hybrid technology to General Motors, even though they are the number one and number two car manufacturers globally. Canon provides laser printer engines for HP, despite also competing in the broader laser printer market.
Did Google doyens check on GM’s performance lately? Or their hybrid sales record? Or, for that matter, Canon’s printer market share? Oy vey! Where is Business 2.0’s “101 Dumbest Moments in Business” list when you need it? In my opinion, with this deal, Yahoo has publicly acknowledged that Google is superior to them when it comes to search and contextual advertising.
More importantly, the Google-Yahoo agreement is most definitely going to be investigated by the Department of Justice. (Senator Kohl, chairman of the Senate Antitrust Subcommittee, issued a statement saying that they are going to be looking at this deal very, very carefully.) One attorney very familiar with anti-trust law pointed out that there is a reason Google and Yahoo announced the deal for the U.S. and Canada — because such a deal will almost never past muster in Europe. On this side of the Atlantic, he pointed out, the language of the agreement is designed to feign innocence.
Yahoo! will be able to complement its own advertising program with Google’s advertising technology. Yahoo can use Google’s advertising technology on as many or as few of its search results and content pages as it chooses. This non-exclusive agreement allows Yahoo! to enter into similar agreements with other advertising providers. [Google Press Release]
How stupid do they think the government investigators are to fall for this drivel? Even if Yahoo enters into an agreements with others, Google is going to win. I mean, if Google’s past performance is any indicator, then as a company they enjoy superior technology and offer better inventory for online advertisers. That is precisely the reason why they are a leader, and that is why Yahoo cut a deal with them in the first place.
Anyway, from the looks of it, the U.S. government investigation is going to entangle Yahoo in underwater weeds of uncertainty. Google, on the other hand, will be victorious in defeat — they would have frozen Yahoo into inaction for awhile. Upon thinking about this further, I realize that it also buys the company some time: It throws Microsoft, Icahn et al off its trail, for another three months while the government investigates.
Yahoo’s best hope now is that someone wants to buy it — News Corp., AT&T, eBay, Microsoft, or even AOL — maybe at a valuation that is much lower than what Microsoft was ready to pay the first time. The sad part of this whole thing is that Yahoo was once a great company that had great products, and that made news by launching great products. Jerry Yang was once Silicon Valley’s wonderboys, and now he is helping his ship run aground.
Microsoft, Yahoo Back On — or Not
It is a sad commentary on the state of affairs in Silicon Valley when Carl Icahn, a known corporate raider from the go-go 80s, is used as a lightening rod to bring two of technology’s major players, Yahoo and Microsoft, to the table to strike some sort of a deal. And there seems to be some sort of a transaction in the works. And that’s not necessarily a good idea.
Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo! Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. There of course can be no assurance that any transaction will result from these discussions.
As you might remember, Microsoft made a $31 a share bid for Yahoo, got spurned, and then raised the bid to $34 a share, only to see it rejected it again. At that point Microsoft walked. Many Yahoo shareholders weren’t cracking smiles when that happened, prompting Icahn to step in with his idea of a board. Ichan’s move to put a new board in isn’t all that bad: Yahoo needs to clean house, as I had said a long time before holier-than-thou Carl showed up.
The New York Times reports that there were talks that “center on a partnership or joint venture for search-related advertising” as the two companies find a way to beat Google. Kara Swisher says that Microsoft “wants most of all to grab Yahoo’s search ad business to become a credible No. 2 in the important sector.”
This is Microsoft, once proud company that would have gone to any length to win, and it is going to settle for second spot. What does it really say about Microsoft? Never mind, it is a rhetorical question.
The combination of Yahoo and Microsoft in the search business is not going to be a winning combination. Essentially Microsoft is in the market to buy eyeballs – ones that have been declining in numbers. Both Yahoo and Microsoft continue to lose market share to Google in the search market.
Just take a look at the April 2008 data for US searches from Hitwise. According to comScore data Google now outranks both Yahoo and Microsoft. So building a search-advertising business makes no sense. (Read Kevin Johnson, Microsoft’s President of Platforms & Services Division memo about Microsoft’s online effort.)
For Yahoo it might not be a bad idea, since the company doesn’t solely rely on search/search-based advertising to make money. Instead, a substantial chunk of its revenues come from (what I like to call) produced pages, email and other content related efforts. If Microsoft wants to pay up for that, that I guess is palatable defeat for Yang & Co.
