“If you can’t beat em,’ join em.'”
-Commonly used idiom
Yahoo! Inc. (NASDAQ:YHOO) was cornered by Microsoft Corporation (NASDAQ:MSFT),Â shareholders, and Carl Icahn over the last few months.Â After months of negotiating a bid price forÂ Microsoft and having to deal with Carl Icahn, Yahoo! decidedÂ to sign an advertising partnership with Google Inc. (NASDAQ:GOOG).Â Was it a good idea or will there be negative implications?Â
A Lost Opportunity for Yahoo! in 2001
At one point Yahoo! had the chance to buy Google, when it was still blossoming into the search and ad powerhouse that it is today.Â Â Â Larry Page and Sergey Brin made a $3 billion offer to former Yahoo! CEO, Terry Semel in 2001, but he turned it down.Â
Three years later Google filed for an IPO and continuously pulled marketshare away from Yahoo!Â Google became a $180 billion powerhouse and Yahoo! shareholders lostÂ confidence in Terry Semel.Â In June 2007, Semel resigned after 6 years as CEO.Â Jerry Yang stepped up as CEO and said that he’ll be able to turn around the company in 100 days.Â This was around the same time that Brad Garlinghouse wrote a public memo about how Yahoo!’s own divisions were competing with each other:
“We end up with competing (or redundant) initiatives and synergistic opportunities living in the different silos of our company such as:
â?¢Â YME vs. Musicmatch
Â â?¢Â Flickr vs. Photos
Â â?¢Â YMG video vs. Search video
Â â?¢Â Deli.cio.us vs. myweb
Â â?¢Â Messenger and plug-ins vs. Sidebar and widgets
Â â?¢Â Social media vs. 360 and Groups
Â â?¢Â Front page vs. YMG
Â â?¢Â Global strategy from BU’vs. Global strategy from Int’l”
Yahoo! had not been able to lickir the wounds fast enough to prevent Google from dominating the market.Â Yang failed to get back the trust of the shareholders.Â Yahoo! did still have the millions of loyal users and the #1 website on the planet, but without shareholder trust, theÂ overall company value declined.Â
Microsoft, the software company with a fat wallet became fed up with Yahoo!’s lack ofÂ a game plan so they stepped in and made a $44 billion offer.Â Yahoo! tried to pull a Google and ask for more money, but then Microsoft walked away from a deal.Â It’s like 2001 all over again and Google walked away as the winner once again by signing a partnership with Yahoo!.
Yahoo! will be using Google AdSense to place Google Ads all on their online properties.Â Google wrote a blog post about the non-exclusive partnership on their blog.
What are the implications?
The first obvious implication is the stock price.Â After yesterday’s announcement, Yahoo!’s stock plummeted and caused them to lose a few billion off of their market cap.Â On August 1, Yahoo!’s shareholders will come together and decide whether this was a smart choice for the company.Â
The secondÂ implication is that Yahoo! is allowing themselves to become dependent on a third party to make money.Â If Yahoo! becomes comfortable on this dependency, how will they be able to compete?Â Google compares it to Toyota selling hybrid technology to GM and Canon providing laser printer engines to HP.Â
An implication against Google is that they are giving Yahoo! the opportunity to make more money.Â And Yahoo! wants to make more money so that they can build themselves to be more competitive against Google.Â Â So why allow it?Â All I know is that Eric Schmidt said that “we like them very much [CNET].”Â
Yahoo! still has the potential to gain the confidence from their shareholders whether it is through rebranding themselves, refurbishing their advertising strategy, or even by allowing Icahn to select executive board members at the August 1 shareholder meeting.
The timeline of the Microsoft & Yahoo! saga is after the jump.
June 2007: Former Yahoo! CEO, Terry Semel Resigns, Jerry Yang steps up.
July 2007: Yang makes a 100 day plan to get Yahoo! off the ground again.
February 1, 2008: Microsoft makes an unsolicited offer to Yahoo! for $44.6 billion.
February 9, 2008: Yahoo! passes on Microsoft offer.
February 11, 2008: Rumor is that Yahoo! may merge with AOL.
February 12, 2008: Microsoft CEO, Steve Ballmer sends a letter to Yahoo! â??Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!â??s shareholders are provided with the opportunity to realize the value inherent in our proposal.â?
February 13, 2008: Layoff notices are given at Yahoo! Ryan Kuder Twitters the entire event.
April 4, 2008: Rumors begin to appear that Microsoft is deciding to pull the offer.
April 5, 2008: Microsoft sends a letter to Yahoo! stating that they may work out a separate deal with shareholders if a decision isnâ??t made.
April 7, 2008: Yahoo! Announces their AMP! advertising platform and stated that they want more money from Microsoft.
April 9, 2008: Yahoo! states that they may be interested in an ad outsourcing deal with Google.
April 10, 2008: Rumors appear that News Corp. AOL, and Google all want to arrange deals with Yahoo!
April 12, 2008: Capital Research & Management invests $2 billion more in Yahoo! shares giving them ownership of $6 billion worth of the company.
April 30, 2008: Rumor appears Microsoft increases the amount that theyâ??re willing to spend.
May 4, 2008: Microsoft walks away from the negotiation table after YahoO! demands too much of a high price for Microsoft.
May 4, 2008: Yahoo! responds by saying that through this experience, Yahoo! emerged as a stronger, more focused company.
May 7, 2008: Yahoo! & Google become more serious about Google Ads appearing on Yahoo!
May 14, 2008: Major Yahoo! shareholder, Carl Icahn steps in and calls the Yahoo! Board irrational.
May 20, 2008: Microsoft makes an offer to buy Yahoo!â??s Search Advertising Business for an undisclosed amount.
May 23, 2008: Yahoo! Director, Edward Kozel resigns to â??spend more time with family.â?
May 23, 2008: Yahoo! postpones shareholder meeting for the second time.
May 28, 2008: Jerry Yang claims company isnâ??t under siege and Microsoft is no longer interested in buying out the whole company at All Things DÂ conference.
May 30, 2008: FTC officially approves Icahnâ??s large purchases of Yahoo! stock.
June 2, 2008:Â Yahoo!Â court documents state thatÂ Yahoo!Â was planning toÂ turn down a deal with Google one day before the Microsoft bid.
June 3, 2008: Carl Icahn indicates if proxy battle is successful, heâ??d want Jerry Yang out of CEO position.
June 4, 2008: Yahoo! Board decides annual shareholder meeting date to be held on August 1.Â
Icahn sends Yahoo!Â a letter explaining that he believes Yahoo! CEO, Jerry Yang sabotaged the Microsoft bid.Â Roy Bostock responds to Icahn by saying that Microsoft is no longer interested in a full acquisition.
June 6, 2008: Carl Icahn sends a letter to Roy Bostock with a 5 point plan detailing what a new board would do for Yahoo!Â Yahoo! sends back a quick response to Icahn saying that his letter is â??ill-advised.â?
June 12, 2008: Yahoo! signs an advertising outsourcing deal with Google.