With yesterday’s announcement that Yahoo and Microsoft have broken off all discussion of a merger (partial or otherwise) and that Yahoo has closed an agreement with Google to carry the latter’s paid search ads on the former’s search engine, it certainly seems like MicroHoo has bitten the dust. Perhaps both companies have decided that the expansion of Yahoo’s fabled acronym (referenced in the title of this post) is the best philosophy. I still believe there’s a lot of posturing going on, and I still believe a deal is necessary. I also think a deal is possible, but I don’t think it’s guaranteed.
I once owned my own firm and I remember how strongly I felt that I would never sell it. My own pride was wrapped up in the company and its success, and I took any subjugation of the company’s identity to equate to that of my own. I suppose Jerry Yang may feel likewise about Yahoo. But, with all due respect (whatever that means), that kind of internalized, emotional approach to business is more appropriate to running a candy store than to being the CEO of a top-tier Internet company. I sold my firm in 2004 so that I, and my employees, could move on to bigger projects and new technologies. I suppose the analogy's a weak one, but why won’t Jerry Yang do the same for his team?
Jerry may get over himself or Carl Icahn may succeed in ousting him and force Yahoo to pursue a Microsoft merger deal with vigor (instead of with passive aggression). But the fact that so much time has elapsed since the beginning of this round of deal-making truly complicates things. Whatever Microsoft may have felt was a fair price for Yahoo several weeks ago, the reality is that the passage of time and events have changed Yahoo’s intrinsic value and its value to Microsoft specifically. Consider:
- The Yahoo brand is now tarnished. And a shareholder rebellion led by Icahn will tarnish it further. This would ostensibly have impact on the reach of Yahoo’s network of sites and the enthusiasm and satisfaction of its customers while surfing it, which could impact click-through rates.
- Microsoft has already lost valuable time and momentum pursuing this deal. With each passing day, the potential boost to its Internet advertising prowess that a Yahoo acquisition could provide diminishes, and the lost potential revenue piles up.
- The caché for Microsoft on the Web that would have come from a swiftly and amicably executed deal with Yahoo is now beyond reach.
All of the above are Yahoo’s losses, first and foremost, but they hurt Microsoft too. There’s no other deal that Microsoft can do that will bring them the audience share, and the demographic diversity of it, that Yahoo can offer. And whether you believe that Microsoft should go into the Web advertising business or not, it’s important to realize that Microsoft is absolutely convinced that it must do so. Under these circumstances, it becomes important that it do so as shrewdly as possible.
At this point, doing a deal depends on (a) Carl Icahn’s maneuvers, and their success, (b) Microsoft’s willingness to accept acquiring a distressed property, rather than a trophy prize and, quite possibly, (c) Yahoo willing to accept a significantly lower price than the one it has already turned down. That’s a lot of intrigue and compromise, and it’s far from certain that either company knows how to endure each or both, let alone do so quickly. There’s a good business school case study in here somewhere. It remains to be seen if it will be a study of success or failure.