Yahoo's CEO Jerry Yang made the rounds on Capital Hill on Wednesday, in an effort to dispel antitrust concerns surrounding its search advertising deal with Google.
During his one-day visit, Yang met with Sen. Herb Kohl, D-Wisc., who chairs the Senate Antitrust Subcommittee.
Kohl has previously expressed concerns that the deal between two technology search rivals could affect competition and have ramifications for advertisers and consumers. He noted the antitrust subcommittee plans to investigate the competitive and privacy implications of the deal.
Sen. Joe Barton of the U.S. House Energy & Commerce Committee also weighed in on the issue Wednesday, issuing a statement (PDF) that expressed concern about the deal's effect on competition in search advertising.
While Barton was not available to meet with Yang on this trip, the senator indicated he would be available next week. And also on the meet-and-greet trip was Rep. Edward Markey, chair of the Telecommunications and the Internet subcommittee for the House Committee on Energy & Commerce.
Google's slice of the U.S. search market reached 68.29 percent in May, according to Hitwise. Yahoo's share of the market declined to 19.95 percent from 20.28 percent in the at same time.
Yahoo, however, has previously said its arrangement is non-exclusive and does not require Yahoo to use any certain number of Google ads on Yahoo's search results page, nor does it require to give Google's ads preferential treatment on where they appear on the right-side column of Yahoo's search results page, where the sponsored links appear.
Yahoo is hoping to benefit from serving up advertisements on its search results pages where there are few advertising links that appear on the right-side column with relevant ads. For example, conduct a search for Fresno and spa and eight advertisements show up on Yahoo, but only two are actually for spas in Fresno. Yahoo gets its advertising dollars only if a user clicks on an actual ad, so the more relevant ads it can post on its search results page, the better its revenues.
Yahoo is hoping to use Google's ads to populate those search results where it tends to have fewer ads. Should Yahoo have a competing ad or ads on the same search page, may the most relevant ad that can entice a user to click on it win.
Whereas Yahoo is looking to bolster its advertising inventory by allowing Google to post its ads on its search page, Google is going in the opposite direction by scaling back on the number of irrelevant ads it has on its search results page--adopting the view that less is more. The search giant on Wednesday also said it is rewarding advertisers with fast-loading advertisements.
Yahoo is giving the U.S. Department of Justice three-and-half months to review its Google partnership, before it implements the search advertising partnership. Regulators, however, may find it more useful to evaluate the partnership after it's been implemented when they can assess the before and after effect.
Yahoo, meanwhile, also addressed privacy concerns raised by the legislators.
"Yahoo is deeply committed to building on our established trust with users by continuing to provide clear, comprehensive privacy policies. We structured the agreement with Google so that Yahoo will not transfer any personally identifiable information to Google without user consent," Yahoo said in a statement. "We have also designed this agreement so that both companies have stayed within each of their existing privacy and data policies, such as Yahoo's policy regarding logs anonymization after 13 months."
Microsoft on Tuesday announced plans to open a search technology center in Europe as it seeks to bolster its Live Search efforts.
The center is slated to open sometime during Microsoft's next fiscal year, which begins on July 1, and a review of potential sites is under way. The site will be modeled after Microsoft's Search Technology Center in Beijing, China, which opened in 2005.
With these international search centers, Microsoft is looking to dive deep into understanding the consumer search habits, methods, preferences of local residents.
"Searchers have different expectations and experiences in every geography in the world, so we believe it is critical to make deep investments in physical locations in multiple markets to ensure that we're applying the best local expertise to our research and development efforts," Satya Nadella, Microsoft's senior vice president of the Search, Portal and Advertising Group, said in a statement.
Microsoft plans to build on its previous projects in Europe, where it has been working on enterprise search via its $1.2 billion acquisition this year of Fast Search & Transfer SA.
The software giant currently reaches 68 percent of Internet users in Europe via its online assets and display advertising, said Kevin Johnson, Microsoft's Platforms and Services Division president.
Update 5 p.m. PDT: I added some more details about text ads not working well in image search and about quotation search at Google News.
Marissa Mayer, vice president of search products and user experience
(Credit: Stephen Shankland/CNET News.com)MOUNTAIN VIEW, Calif.--Google is beginning an "experiment" that incorporates graphical ads with image search results.
"What we're announcing today is a new suite of image-related experiments. We're pairing images with images for the first time--display ads with image search," product management director R.J. Pittman said at a Google media event at company headquarters here.
Google got rich off of text ads that appear next to textual search results, but the company is working to build up its display ads too. Its acquisition of DoubleClick was instrumental in the push.
As demonstrated, the ads are set off from regular results with a pale yellow background. But the company clearly wants the ads to be useful.
"How can we introduce advertising in a way that actually improves your image search experience?" asked Marissa Mayer, vice president of search products and user experience, at the event.
Google began showing the image ads in the last two weeks to a small subset of users, Mayer said. It's not clear when it will be fully ready, but Mayer estimated 2009.
A sample view of the display ads in Google image search.
(Credit: Stephen Shankland/CNET News.com)She declined to comment on the revenue implications of the move, but said Google doesn't want to sacrifice usefulness for the new ad opportunity. For example, Google tried text ads on image search but didn't like what it found, and therefore went back to the drawing board.
"They degraded the user experience on image search," causing people to search less, Mayer said in an interview. "It's not a huge amount of fall-off, but we weren't willing to cash in user happiness to make revenue."
It's one of handful of search projects under way at the company that Google was willing to share at its "factory tour" event.
Another development, now available, is the ability to search quotations of those who've been quoted in stories indexed by Google News.
The feature lets people search for quotations from a specific person and sift the results quotations by name or how recently it was said.
Carl Icahn notwithstanding, Yahoo's deal to use Google search advertisements is still a go.
The partnership, which is designed to increase Yahoo's ad revenue, is "still on track," a source familiar with the partnership said, and an announcement is expected next week. That aligns well with reports in the New York Post and Reuters.
Take this schedule with a grain of salt. I've been snooping around on this particular deal for a while now, and plans to announce it have slipped several times. Jerry Yang and Yahoo's other top executives are reckoning with Icahn, which has to be consuming a lot of time.
Microsoft Chief Executive Steve Ballmer lambasted the Yahoo-Google ad deal as handing over even more search-ad dominance to Google and, in effect, making Yahoo vastly less desirable. And there are antitrust concerns, though Google executives seem to think it's not a big worry.
Even if the deal goes through and Icahn's agitating yields a new deal with Microsoft, it's possible that Yahoo could just switch it off without too much harm done. Even a short-term deal might well the engineers who worked long and hard on Yahoo's Panama search-ad system to spruce up their resumes, however.
Updated at 6 p.m. PDT with comments from an institutional investor.
Microsoft on Saturday issued an ultimatum to Yahoo, giving the Internet search pioneer three weeks to enter formal merger negotiations and conclude a deal.
The software giant threatened to launch a proxy fight to unseat Yahoo's board of directors, as well as take its case straight to Yahoo investors should no deal be reached in that period.
And as a further cattle prod in getting a deal consummated, Microsoft threatened to lower its existing bid, citing how Yahoo's value will be hurt if it needs to resort to such hostile means.
"If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board," Steve Ballmer, Microsoft chief executive, stated in his letter to Yahoo's board of directors. "The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."
Microsoft initially offered an unsolicited buyout bid of $31 per share for Yahoo back on February 1.
Microsoft's big bid for Yahoo
Since its initial offer, executives from both companies met four weeks ago for the first time to discuss the merger and once again last week with no results of moving it into formal talks.
Yahoo's board is expected to discuss Ballmer's letter next week, as well as provide a briefing on how talks between the two companies went last week, one source said.
Ballmer's letter is no slam dunk in driving Yahoo to formal talks. Yahoo, which already rejected Microsoft's initial offer as too low and one that undervalues the company, is leery of entering formal talks without assurances Microsoft's bid will be higher.
"We could enter formal talks and they might increase the bid, or they might not," the source said, noting opening their financial books to the software giant may make little difference. "Our books are already open. We're going to report our earnings in a couple weeks."
Yahoo, meanwhile, is cognizant that Microsoft wants to get the deal done and past federal antitrust regulators, otherwise called the Department of Justice (DOJ), while President Bush is still in office, the source said.
One former high-level antitrust attorney with the DOJ, who is now in private practice, said it usually takes six to eight months to move a deal through the DOJ. There is approximately eight months left before Bush's term ends.
Meanwhile, another source noted back in early March that Microsoft has its opposition slate of directors for Yahoo all ready to go.
The opposition slate would move to unseat Yahoo's 10 directors at the next annual shareholders meeting. Should Microsoft take such action and prevail, it's likely the opposition slate would vote to remove Yahoo's "poison pill," which makes it prohibitively expensive to acquire the company. A poison pill floods the market with additional shares of a target company, should a hostile bidder acquire too many shares of a company's stock.
Ballmer, in his letter, indicated that Microsoft would ask Yahoo investors to tender their shares to the software giant, which would park them until it could get its opposition slate elected. While Microsoft would not be able to gain control of Yahoo by taking that measure, it will send a clear message to Yahoo if enough of the Internet company's investors side with Microsoft. Basically, it would show Yahoo how successful Microsoft would be in getting its opposition slate of directors elected, when those investors are asked to vote on Yahoo's new board.
Yahoo should brace itself for an onslaught of investor wrath come Monday.
One large institutional investor is planning to call Yahoo's independent directors and management on Monday.
"I'm not happy with how Yahoo has handled it. I think they've bungled it while Microsoft has played it pretty well," the investor said. "I like that (Microsoft) has put a clock on this. I previously told Yahoo's independent directors that if they didn't move forward with this, I might support a new board."
And while this investor had a brief thought of banning together a group of major Yahoo investors to make a public statement in support of Microsoft's bid, the institutional investor noted that there would be a number of filing hoops to go through with the Securities and Exchange Commission. He noted a more likely scenario will be for institutional investors to make individual statements.
The investor previously advised Yahoo to move forward and fast in doing a deal with Microsoft, given the changes in January with a new administration in the White House and in the European Union. He also advised Yahoo's management to ditch the idea of doing a roadshow with its three-year strategic plan, and instead spend the time getting a deal in place.
"We all think Microsoft should pay more for Yahoo and, if it is handled right, Microsoft will likely pay more," said the major investor, who thought $34 to $35 per share is a good range.
The investor added: "Microsoft has to do this deal. The paradigm is shifting away from their core business to the Internet. They've already spent billions of dollars but haven't gotten it right. This is such a logical deal for them to do."
Microsoft and Yahoo executives took another run at trying to ignite formal merger talks this week, but failed to kick it into gear, according to a report in The Wall Street Journal.
Apparently, Microsoft says no dice to raising its buyout bid and Yahoo remains hesitant to open its books without a bump up in price, according to sources cited in the Journal.
Microsoft's big bid for Yahoo
Although it's unclear which executives are doing the merger dance, the meeting was held near Yahoo's headquarters, the report states.
The parties last talked four weeks ago, marking the end of what had been six weeks of silence since Microsoft threw out its unsolicited buyout bid valued at $31 a share at the time.
Yahoo later .
But maybe Yahoo should have been sitting in on a presentation Thursday at Tulane University Law School by Mark Shafir, one of the top merger and acquisition chiefs at Lehman Brothers--an investment bank that is also representing Yahoo alongside Goldman Sachs as it sorts through its options.
According to the Journal's Deal Journal blog, Shafir had a few dire predictions about the state of large merger and acquisition deals.
"We don't see access to capital for large deals any time soon," Shafir is quoted saying in the report. "Credit is difficult even for the very well-heeled folks."
That may put a damper on white knight scenarios of an outright acquisition for Yahoo, outside of the Microsoft offer.
Shafir, according to the report, also noted that M&A deals are expected to skid to $2.7 trillion this year, compared with $4.2 trillion last year. And strategic buyouts, like the one Microsoft wants with Yahoo, are expected to plummet by approximately 30 percent. Ouch.
Venture capitalists, meanwhile, are also bracing for a dour economy, notes CNET News.com Stefanie Olsen in her blog.
Yoo-hoo Yahoo, what do you think?
Microsoft's quest for Yahoo may come under increasing pressure this month, as time ticks away to get a deal done and past antitrust regulators, before President George W. Bush exits stage left, said proxy solicitors and investment bankers.
That's because it typically takes anywhere from six to eight months to move a merger deal through the Hart-Scott-Rodino process and beyond, said one former, high-level antitrust attorney with the Department of Justice, who is now in private practice.
A spokeswoman for the DOJ noted that while the agency has previously stated it would be interested in looking at a Microsoft-Yahoo deal should one occur, the time it takes to review mergers ranges widely.
Microsoft's big bid for Yahoo
And although one source familiar with Microsoft's efforts to acquire Yahoo said the software giant doesn't have any internal deadline for snaring the Internet search pioneer and there is no clear correlation between the party in power and nixed mergers, Microsoft, nonetheless, may be watching the clock and doing the backward math, say proxy solicitors and investment bankers.
President Bush, who is on his way out come January 20 when a new president is inaugurated, has largely been good for Microsoft in the antitrust arena--at least in comparison to the its treatment from European antitrust regulators.
And should Microsoft be watching the clock, that bodes well for Yahoo.
Yahoo's stock price is beating a little stronger these days. And that rise was not necessarily driven by the full onslaught of the company's big, splashy, three-year financial game plan unveiled two weeks ago, say several hedge fund managers.
Rather, the 12 percent share price increase over the past fortnight may stem from Yahoo's quiet notation in that financial game plan that the company's first-quarter performance is expected to fall in line with Wall Street's current assessment.
"Their stock price has risen, not because of their plan, but because they reaffirmed their first-quarter guidance," said one hedge fund manager. "Investors were scared that if they puked on their first-quarter performance, Microsoft would lower its bid or not bump it up."
Microsoft is still biding its time on a buyout offer for Yahoo initially valued at $31 a share.
Yahoo on Monday closed at $28.93, up 12 percent from its closing price the day before it unveiled its financial plan--and first-quarter guidance reconfirmation--two weeks ago. That's a pretty sizable pop, compared with the Nasdaq, which climbed 4.7 percent during the same period.
Another hedge fund manager said rumors on the Street last week were suggesting Microsoft might offer anywhere from $34 to $36 a share for Yahoo, and there was talk that the Redmond giant would be willing to offer an all-cash buyout of $34 a share.
Meanwhile, investment bankers and proxy solicitors say Yahoo is likely done with its intelligence gathering--er, make that investor road show presentations. They note that companies can usually get a good feel within two weeks which way investor sentiment is leaning, be it a hostile merger proposal, an IPO, etc.
"Some investors will be blunt, some will say let me think about it, and some say nothing," said Bruce Goldfarb, chief executive of proxy solicitation firm Okapi Partners. "A company will collect the information and then think about their next step."
Goldfarb and one investment banker said there's a message coming through loud and clear with Yahoo's rising stock price: Investors "expect more money."
Keeping tabs on Microsoft's efforts to win Yahoo, Matt Karnitschnig of the Wall Street Journal reported Friday on some interesting events.
As reported Thursday in News.com, the "radio silence" between the two companies has taken a shift and the parties have held informal merger discussions.
An interesting note in Karnitschnig's report is that the talks Monday in the Valley were held with only senior executives of the companies and no investment bankers from either side.
And while it's not unusual for executives to chat informally about "what if" merger scenarios without bankers and lawyers hovering about, it was a particularly smart move on Microsoft's part, said one former banker.
"Given they already have this offer out there, the dynamics are very different," the former banker told CNET News.com. "By having bankers there, it lends an air of formal negotiations. Microsoft is trying to get Yahoo to buy into the concept of a combined business and then hope they'll be more willing to negotiate...it's like trying to win the hearts and minds of the enemy. And with the bankers there, it's seen as more of a negotiating tactic than a friendly olive branch."
And while the Journal report notes that no other meetings between the companies have been scheduled since Microsoft gave its outline of the combined companies, that's not to say the folks in Redmond don't foresee another trigger point ahead.
One source familiar with the talks told CNET News.com on Wednesday that Microsoft will keep a keen eye on Yahoo's upcoming first-quarter results, when the Internet search pioneer reports its financial performance on April 22.
Microsoft and Yahoo are holding informal merger discussions, marking a shift from the "radio silence" that previously existed between the two companies, according to a source familiar with the talks.
A lot has changed over the past two weeks, compared with February 1 when Microsoft issued its unsolicited buyout bid for Yahoo, which initially valued the company at $31 a share.
"Yahoo has shown some willingness to have a conversation and talk," said the source on Wednesday. The source noted the Redmond giant has since come to the conclusion it may never get a formal rejection letter from Yahoo.
Whether these informal talks will lead to a deal has yet to be seen, added the source.
The recent events add further clarity to comments Microsoft CEO Steve Ballmer made at CeBIT a couple weeks ago, in which he said "'there is a range of dialogue' for both companies about the proposed takeover," as cited in an Associated Press report.
Another source close to Microsoft's Yahoo buyout efforts, however, cautioned Thursday that if the talks had reached a substantive level, Microsoft would have disclosed it publicly.
Last week, Yahoo announced it would extend the deadline for investors, including Microsoft, to nominate an opposition slate of directors, in an effort to avoid a proxy fight with the Redmond giant while it explored its options.
Then on Monday, one of Yahoo's possible white knights, News Corp., indicated it had no interest in entering into a bidding war with Microsoft. And on Tuesday, Time Warner's CEO noted he wouldn't rule out a deal with the company's AOL operations and Yahoo, noting in sweeping terms that Time Warner would consider anything that would make AOL stronger. AOL, however, announced Thursday it plunked down $850 million--in cash--for social-networking site Bebo. And while the Bebo acquisition doesn't necessarily mean Yahoo is no longer of interest to AOL, Time Warner has less money to burn post-Bebo.
Representatives from both Microsoft and Yahoo declined to comment.
And while the software giant could pounce and go hostile at any moment--via a proxy fight, exchange offer, or both--Microsoft-Yahoo observers should be ready to park it on a bench for a while.
Microsoft has set no internal deadline of when it's ready to say enough is enough, said the source.
"Sure there has been some frustration in Redmond over the pace, but this is a marathon and not a sprint," said the source.
CNET News.com's Ina Fried contributed to this blog.
