With the Microsoft/Yahoo/Google triangle taking a new shape as Microsoft exited and Yahoo and Google connected, the analysts covering tech industry sports are weighing in with their opinions.
Some Wall Street analysts believe Microsoft will take another run at Yahoo if the company can't get back on track or Carl Icahn wins his proxy fight to control the Yahoo board. That may be wishful thinking. Kara Swisher reports that Microsoft is done with its courtship of Yahoo and nothing will bring them back to the negotiating table.
Mike Arrington of TechCrunch called the Yahoo-Google deal a massive destruction of shareholder value, employee morale, and the Interent balance of power:
Yahoo's hatred of Microsoft runs so deep that they were actually, in the end, willing to destroy the future of their company just to keep it independent for a short while longer. They've ignored the wishes of their shareholders, employees and many now former key employees in killing that deal. And apart from Google, CEO Jerry Yang, President Sue Decker and possibly Tim O'Reilly, I don't believe there is anyone in the world that is happy with what has happened.
In a further lambasting post, Arrington called Yahoo desperate and possibly neurotic:
Quite simply, it looks to me like Yahoo is effectively paying Google off to step in and (1) keep Jerry Yang, Sue Decker and the current board of directors in power, and (2) avoid a desperation deal with Microsoft for as long as possible, or longer. It's not even clear to me that Google wants this deal, based on the terms. It almost looks like they're just doing Yahoo a favor, and trying to keep them out of Microsoft's hands.
At the other end of the spectrum, venture capitalist Fred Wilson thinks that Yahoo did the right thing by choosing Google over Microsoft as a partner.
Yahoo! finally woke up and did what they should have done years ago, cede search monetization to Google who simply does it better and will always do this era of search better than anyone else.
Now Yahoo! will do what it needs to do. Clean house, get lean, get out of businesses it shouldn't be in. Focus on what it's good at. And start making money and growing again.
They may need new leadership to do that. But selling this asset to Microsoft just because they had the wrong leadership and probably still have the wrong leadership is a mistake.
From my reading of the events over the last five months, Yang regrets that Microsoft walked away from the acquisition talks. "We all felt and understood a combination done right has a tremendous amount of power and leverage," Yang said during an interview with Walt Mossberg at the D6 conference.
Yahoo CEO Jerry Yang and President Sue Decker have a challenging set of quarters coming up.
(Credit: Dan Farber/CNET News.com)As a founder, Yang preferred that Yahoo stay independent and that he have the chance to turn the company around as CEO. Microsoft historically was not the kind of partner that Yang considered for a marriage. And his board of directors, led by non-executive Chairman Roy Bostock, seemed to go along with that line of thought.
But the entire affair turned out to be mostly about the money, as Decker admitted. "We never got through the price door," she stated during the same D6 interview. Yahoo's board believed that the company was worth more than $35 per share based on future promise, and Microsoft wasn't on the same page. In effect, Microsoft called Yahoo's bluff.
It also wasn't helpful that Yahoo was negotiating the search deal with Google at the same time Microsoft was pursuing its hostile bid. After months of rejection, Microsoft basically became less enchanted with the potential marriage, and despite the pummeling from the shareholders, Carl Icahn's camp, and the press, Yang and his advisors held out for more money.
Unable to come to terms with Microsoft on a generous deal just for the search business, Yahoo took the less complicated, non-exclusive Google deal that allowed the company to remain in the search game.
As I wrote in my post "The battle for Yahoo's soul," Jerry Yang and Sue Decker have a short runway--about six months--to prove that they can "redefine" the essence of Yahoo in a way that yields more revenue, profit, and positive buzz. With the continuing board room distractions, employee defections, and morale issues that go along with being under siege by various parties, the duo have their work cut out for them.
After a brief hiatus while transitioning from ZDNet to CNET News, I have returned to the blogosphere. It was like going without my favorite tea (tie kuan yin) for nearly a week.
Google's precipitous share price fall seems to have abated this morning. The shares are on a rebound, after tanking more than 8 percent in the previous two days due to a decline in paid search. The decline can be explained away by the slowing economy or fewer ads on pages, but Fred Wilson exposes a nugget worth exploring in this blog post:
But the bigger story on Google is that it has been a one trick pony for years. Everything that Google does is paid for by its paid search business. In the fourth quarter, Google generated $2.9bn of gross profit (gross margin) and $1.7bn of operating cash flow. That means it spent $1.2bn on operating expenses. I bet that only $200-300mm of those operating expenses had anything to do with paid search. So if that's true, and it's a wild eyed guess, then Google is spending close to a billion dollars a quarter on stuff that is not producing revenue right now.
In other words, Google is spending immensely to become more than a highly profitable one-trick search pony. The bubble bursting of late puts Google's situation in bas-relief. While the company is increasing its share of the search business, and a Microsoft-Yahoo combo would take at least a year to gain any traction in search, the Googleplex is focused intensely on the next frontier--applications and services, which so far haven't contributed much to revenue as Fred pointed out. It's also the space where Microsoft and Yahoo have an advantage. A Microhoo union (it's been quiet that front so far this week) could make life difficult for Google as it attempts to convert searchers into community members and application users.
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