I’m honestly not too exited about the pending search deal between Yahoo and Microsoft. The idea of slapping Bing’s search interface for people who don’t know how to search on the young demographic of Yahoo users isn’t really a match in my mind. If the deal actually does consummate it is a definite win for MSN from the stand point of getting the traffic volume it was never going to get otherwise. The quality of the majority of that Yahoo traffic is questionable, but it’s volume and that’s what they want and need.
But the point of this post is that this is far from being a done deal. In a previous life I got very familiar with the world of mergers, acquisitions and deals of this sort specifically from the standpoint of regulatory approval. For those of you who don’t know the main character in the upcoming drama let me introduce you to Christine Varney, she’s the Antitrust chief of the US Department of Justice and she has been very clear that:
…she would take a close look at high-tech and Internet-based markets. She also promised that antitrust enforcers wouldn’t “sit on the sidelines” during her tenure.
Before she took her position she was quoted saying:
“For me, Microsoft is so last century. They are not the problem,” Varney said at a June 19 panel discussion sponsored by the American Antitrust Institute. The U.S. economy will “continually see a problem — potentially with Google” because it already “has acquired a monopoly in Internet online advertising,” she said.
How is this quote a problem for the pending deal between Microsoft and Yahoo? While she did say that Microsoft is ‘so last century’, that’s not the important part here. What I’m talking about is the effective death of Yahoo and consolidation with MSN in the world of search and online advertising. Yes I said “death” and I’m not alone in that assessment. Danny Sullivan has already written the Eulogy and Jason Calcanis has called it a suicide. You don’t necessarily make a more competitive market by eliminating a major competitor, and let’s be clear there is NO GUARANTEE that Micro-Hoo will even maintain their share of search and paid search position while being a combined company versus Google.
Demographically the users of Microsoft are typically older and more female and Yahoo users are typically younger and poorer. If Yahoo Search is “Powered by Bing” I have my doubts that younger more savvy searchers will bother to put up with Bing’s search results designed for Grandma… The Yahoo generation knows what they are doing and doesn’t need the categorization that Bing presents with each query. I actually agree with Jason Calcanis that:
Today, with their Microsoft deal, Yahoo again undervalues their search asset. Again, they will be “Powered by…” and again they will destroy their brand and its value.
In my mind this deal does nothing to make the paid search market more competitive – Micro-Hoo offers less choice and greater power to increase prices. The rubber stamp that the US Department of Justice wielded during the Bush years is gone, and it doesn’t take a genius to figure out that the public benefit of such a deal, with Google already allegedly being a monopoly may be questionable. The ultimate irony is that Microsoft will likely be trying to defend itself against the exact arguments it used when it lobbied regulators to oppose a similar proposed deal between Yahoo and Google last year – which makes it’s credibility questionable.
It could take up to 2 years for this pact to even get regulatory approval from the Department of Justice and don’t forget the European Union – which hasn’t taken any break from exacting significant concessions in merger partnerships and deals of this sort. All the while, both companies have got to somehow try to integrate technologies and sort out how to manage the mess (i.e. layoffs, integration nightmares & up to $700 million in transition costs).
Additionally, don’t forget the lawsuits. How does Yahoo go from turning down a Billion Dollars a year ago from MSN for it’s search assets – because it wasn’t enough – to now giving it away for 0$? Yes they are getting a high percentage of the ad revenue generated from Yahoo.com properties (this may only be 45% of paid search revenue) for the next 10 years. Yahoo CEO, Carol Bartz, went from saying it would take “boatloads of cash” to make a deal in earlier months to now saying revenue sharing is the way to go. Some Yahoo shareholders will not be happy with this deal, and will likely sue to block it. They won’t be the majority of the shareholders who obviously had to be agreeing for this deal to get off the ground, but these shareholders can make it difficult in the mean time for getting the deal cleanly consummated.
If you’re a Yahoo shareholder, the phrase “$31 per share” probably still burns in your memory. That was the price Microsoft CEO Steve Ballmer offered to Yahoo’s then CEO Jerry Yang for the entire kit and kaboodle back in February 2008. Yang scoffed, Microsoft walked, and Yahoo shareholders are now stuck with a stock worth half that amount. And so far it seems Yahoo shareholders aren’t buying Yahoo CEO Carol Bartz’s claims that the deal will bring “boatloads of value for Yahoo” and that the “boatload of cash is us preserving our revenue line.” Yahoo shares are down boatloads today instead.
Bottom Line – if it happens, it might take a while and might be messy…