Not So Crazy: Yahoo May Partner With AOL To Escape Microsoft
Wondering what’s next after the news that Yahoo
apparently plans to
takeover offer? The Times Of London
reports Yahoo will restart merger talks with AOL. Below, more about the news
along with some back history on AOL in search and why a Yahoo-AOL partnership
might indeed be a compelling way to convince Yahoo shareholders to resist
From the article:
It is understood that Yahoo! and its team of advisers from Goldman Sachs
and Lehman Brothers, the US investment banks, have spent the past week
evaluating possible tie-ups with media and technology firms that would save it
from being swallowed by Microsoft.
It is also understood that one option being explored is to restart merger
talks with AOL, the online business owned by Time Warner. Tie-ups with groups
such as Google or Disney are also being considered. Although Yahoo! and AOL
previously failed to join forces because of differences over price, it is
hoped that the urgency created by an unwelcome approach from Microsoft and an
impending economic downturn will spur the two into new talks.
The article touches on issues that came up in the earlier report of Yahoo’s
expected plans to reject Microsoft — that it considers Microsoft swooping in
for the kill at a price that doesn’t value Yahoo enough, and that a share price
of $40 or higher would be necessary for Yahoo to consider a Microsoft move.
Yahoo is expected to publicly announce its decision today. For Microsoft to
move ahead with Yahoo, it would either need to get shareholders to pressure
Yahoo’s board or wage an even more hostile attempt to oust the board, something
made difficult through various poison pill
provisions that Yahoo has in place. The nomination process for new board
members opens this week, on February 13, and runs for 30 days, ahead of Yahoo’s
regular annual meeting.
Would a Yahoo-AOL tie-up make sense? To be honest, I haven’t spent much time
looking at duplications in audience shares over various portal features. No
doubt, the various rating services will start churning this material out
In terms of search, it makes much more sense than the "scale economics" pitch
Microsoft has been putting out. In that, Microsoft argues that both companies
are somehow wasting resources that could go into beating Google by running a
single search index. That just doesn’t wash as a reason for Microsoft for having
failed to beat Google in its now five-year search war (see
Microsoft’s "Third Era"
Of Search Begins With Departure Of Search Chief Christopher Payne and
Microsoft Live Search
Core Relevance Program Management Director Eytan Seidman Moves On for more
background on that). Microsoft has billions of dollars at its disposal to spend
on search and has shown no hesitation in making that spending.
Instead, getting Yahoo has seemed much more about acquiring Yahoo’s audience,
necessary to advance Microsoft’s search and online advertising agenda. Some
recent articles from us exploring more about that reason and how Yahoo and
Microsoft largely duplicate each other:
- MSFT + YHOO: What
Would Microsoft Yahoo Look Like?
- Q&A With Microsoft
On Proposed Yahoo Purchase: 2+2 = #1
- Microsoft’s Prize:
Big Yahoo CPMs, Largest Display Share
- MicroHoo: Boon Or
Bust For Yahoo?
- Google Objects To
Microsoft & Yahoo Wedding; Microsoft Responds — Irony All Around
In contrast, to Microsoft, AOL lacks core search functionality. It doesn’t
crawl the web, and while it does have its own
paid search listings
program now, that’s simply a white-label version of Google’s, to my
understanding. A tie up with Yahoo wouldn’t see a duplication of efforts or the
integration problems that Microsoft would face.
AOL does have a
growing video search feature and technology with Truveo, and it is still a
powerhouse in some areas,
such as finance. But
the company largely feels like it has stalled on the search front overall. Long
time search exec Jerry Campbell
departed in late
2006, its FullView architecture that made it more than just a Google clone
was abandoned in
early 2007, and the company has seen its share of search drop over the years.
Why is uncertain. Much, in my view, has to do with the fact that many people no
longer see AOL as a start up screen since it started pulling back on its
subscription services. comScore
puts it around 4.5
about the same.
See my History Of AOL
Search post from last year for more about AOL’s search moves over the years.
Most of AOL’s activity recently seems to have been buying up all types of
advertising companies. Last year, it brought
Tacoda, which does behavioral advertising, as as well began moves to acquire
Quigo — which has been doing contextual
advertising for almost as long as Google (and much longer than Yahoo). These
units, along with others, make up AOL’s
Platform-A business group. As the
company describes it:
AOL offers advertisers access to the broadest display advertising network in
the U.S. and some of the most sophisticated tools available to target and
measure online advertising campaigns through AOL’s
Platform-A business group.
Platform-A consists of Advertising.com,
which operates the largest third-party display networks; behavioral targeting
Third Screen Media, which
operates one of the largest mobile media networks; market leading video ad
serving platform Lightningcast;
Quigo, which offers advertisers the ability
to target ads based on the content of Web pages; and
ADTECH’s global ad serving
just added yet another company to the group, the Buy.at affiliate network.
An AOL-Yahoo tie-up? I’d say there’s less duplication than Microsoft-Yahoo
and perhaps more synergies. But the key question is whether it would make
Yahoo’s shares ultimately worth more than if Yahoo went with Microsoft. No one
really knows. Microsoft certainly could use Yahoo as part of taking on Google in
the application space — Yahoo is by far the reigning champion there earning
cold hard cash from its sales. But Google is a major threat if it can grow free
apps that are funded by its online advertising. As I explained
Where Microsoft really can argue that Yahoo needs its help is on the
application side of Google’s ambitions. Remember
Google’s current tag
line: "search, ads & apps." Want to see the winners in each category?
- Search: Google in first, Yahoo in second, Microsoft in third
- Ads: Google in first, Yahoo in second, Microsoft in third
- Apps: Microsoft in first, Google in second, Yahoo in third
Yahoo’s fine with search and advertising. It’s in the apps space where
Microsoft could help. By apps, I’m talking about things like Microsoft Office,
which is making Microsoft billions per quarter. Google continues to build
Google Office, which
practically no one
uses. But I and many others think that will change.
The question is, to fight Google, do you need to fight it on all fronts? Do
you need to have a free web analytics program, blogging systems, mapping
programs, and much
Frankly, Yahoo might be able to argue to shareholders that it can indeed
deliver value as being a leader in the search and ads space without the
distraction of trying to fight Google on the apps front as well.
One last twist in all this. Don’t forget that Google
owns 5 percent of
AOL, and as Silicon Alley Insider reminded last year, Google has the right to
force an AOL IPO or get Time Warner to
buy back its stake at fair market value by July 1, 2008. Google, which wants
to stop the Yahoo-Microsoft tie-up, might be able to sweeten the idea of Yahoo
getting AOL by reducing its rights or potential payout as part of that
For related discussion on today’s news,