Microsoft, Yahoo said in talks on search deal
Updated 6:15 AM PST November 30
According to one report, Yahoo and Microsoft may once again be working on a search deal.
The Times of London reported this weekend that Microsoft is in talks to acquire Yahoo's search business for $20 billion. According to the paper, former AOL CEO Jonathan Miller and fomer Fox Interactive President Ross Levinsohn are set to head the effort.
"Senior directors at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed," The Times said in its report.
Microsoft declined to comment on the report. It is worth noting that as of Friday, the market capitalization of Yahoo in its entirety was just shy of $16 billion. Microsoft was once willing to pay far more to get Yahoo, but a lot has changed since the early part of the year.
Since Microsoft made its last offer for Yahoo, Yahoo and Google have announced and abandoned a search deal, Yahoo's shares have plummeted to single digits, and the company has said it would replace Jerry Yang as CEO.
In the days following the Yang announcement, Microsoft CEO Steve Ballmer indicated that the company was decidedly not interested in a full acquisition of Yahoo but said that some sort of search partnership remained "an interesting possibility." CNET had earlier reported Microsoft's continuing interest in such a deal.
Update:Kara Swisher of D: All Things Digital talked to Ross Levinsohn, who the Times of London said would be involved in the $20 billion deal. He told her the report was "total fiction," and sources from Yahoo and Microsoft denied such a deal was in the works. Of course, this series of denials doesn't mean that a search deal between Yahoo and Microsoft isn't a real possibility in the near future.
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina.
Perhaps c|net could do more of a story on this and answer the obvious questions of how Microsoft sees this working given certain unforeseen potential situations in the future, such as what happens if Yahoo can't fund future features that draw in eye balls and make the site sticky.
Alex Alexzander
Yahoo would take Microsoft's money and use it to provide other new services on the Yahoo website. They might even make a new and better search engine.
It is essential that Yahoo stay alive. But the funding for Yahoo comes from advertising. Without it, they have less revenue. If they sell their future ability to earn money, they die and if they die, they are not useful.
Alex Alexzander
Going back on topic, Google's ad deal with Yahoo proposed payments to Yahoo, and was really a profit sharing vehicle. So it was clear that Yahoo would still have an income under that deal. With Microsoft owning the search outright, and thus, I assume, owning all the advertising between Yahoo and MSN properties, it's not clear were Yahoo future earnings will come from. And that relates to their long term health. They can't live off 20 billion forever.
So again, who funds expansion of Yahoo in the future? Is there some profit sharing to keep the property alive? What specifically does Microsoft own in terms of this deal? I'd really like to know more about the specifics of this deal.
Alex Alexzander
They need competent people who understand the Internet, something MS has never seemed to be able to grasp.
As you mentioned the current market cap for the whole company is less than what they are paying for one piece.
It only shows how easily people are deceived on this topic.
:)
This allows Microsoft to make a much smaller investment to test the waters at how much of an 18% marketshare in search they can control in addition to their 5% for $5 billion to start rather than jumping in with a $47 billion-dollar buyout. Controlling a potential 23% stake rather than a 5% stake for $5 billion up front is a small price to pay. Assume it doesn't work at all, they lose little. You have to imagine in the short term it will see it's best return as no one is going to leave Yahoo simply because someone else is managing their search. So right off, they will see a good return in revenues. Easily enough to pay for this investment in a couple years time. It also gives them a true window in which to gauge how well the concept works. It's a baby step. One that likely pays for itself.
The real issue for Microsoft is perhaps not owning Yahoo. Or even owing 100% of the revenue from this deal. The real goal here is to control a larger stake of the search ad space because that truly puts you in the ballpark. It's not just the profit engine. At least not right now it isn't. Right now, it's merely a way to lay claim to a potential 23% vs. Google's 77%. Which is a far better place for Microsoft who now stands at just 5% vs. 77%. That lift in space alone will allow then to at begin to be competitive against Google. Without it, they simply don't exist.
$5 billion is a small price to pay to truly see if the $20 billion is worth it. Remember, they expand revenue by controlling this larger property under the terms. So $5 billion isn't truly $5 billion. They will get money back from this, as I am assuming Yahoo will because the Times Online article states it could raise Yahoo revenue by $2 billion a year.
I say go for it. And I see why Carl is buying up a block in this. There is a profit to be made. It is said every 1% of the search business is worth about a billion dollars. $5 billion used to leverage 18% is a good ROI if that's true.
Alex Alexzander
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by humanssssss
November 30, 2008 10:26 AM PST
- Microsoft has to buy Yahoo search. There's no way around it. They need to recoup the money they invested by creating an economy of scale. Without Yahoo search, it will take them a lot more years to accomplish, and as a capitalist, that's an opportunity cost and you don't wait.
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by Alex Alexzander
November 30, 2008 11:51 AM PST
- You don't have to buy anything. You need controlling interest. And you Yahoo to survive or else you risk defections on a mass scale which only translates into losses. It's in Microsoft's best interest to control Yahoo search in order to argigate it, and to grow both MSN and Yahoo as that gives you a better chance to compete with Google.
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(16 Comments)HotMail is number 1. Followed by Yahoo, and followed by GMail. Yet Google has 77% of the market for search ads. Yahoo 18% and Microsoft just 5%. Even though a lot of people go to MSN and Yahoo, advertisers don't buy ads on these two sites. Microsoft needs to be more competative, and you do that by offering a lot of eyeballs at a comepative rate, and of course increasing the popularity of your search engine. But that doesn't mean you have to own Yahoo. You just need to control is ad business and search.
Alex Alexzander