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Yahoo, Google, AOL Strike a Pose for Microsoft

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Update: The Wall Street Journal reports that Yahoo and Google are going to work together on an experiment that might lead to big things. In other words, a two-week test that is limited to Yahoo’s U.S. traffic will carry Google ads. These ads will be limited to “no more than 3% of Yahoo’s Web search queries.” If all goes well, then a broader search outsourcing arrangement could be struck by the two companies.

Loose translation: With its bid for Yahoo, Microsoft made a checkmate move. Yahoo is out of suitors. Its shareholders don’t give it a prayer of a chance, and further more, the company is still as listless as it was six months ago. So what does it do? It goes and sleeps with the enemy!

Just a reminder of Yahoo’s cluelessness: In 2000, it outsourced its search queries to Google. It renewed the deal in 2002, and has become a minor player in the search business. Anyway, about this new-found friendship, I wonder if the U.S. government is going to let this one through. I mean, this is one instance in which antitrust concerns could actually hold some merit.

Microsoft is pretty clear about its position. As Brad Smith, Microsoft’s General Counsel, told the WSJ:

“Any definitive agreement between Yahoo! and Google would consolidate over 90% of the search advertising market in Google’s hands. This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo!”

Either way, in this deal, heads or tails, Google comes away a winner. If Yahoo goes to Microsoft, the ensuing chaos is going to benefit Google. If Yahoo gives away its search ad business, Google is a winner.

Update: The Wall Street Journal is reporting that Yahoo and Time Warner are planning on putting together a deal where Yahoo will get AOL which is being valued at $10 billion. In exchange Time Warner will get 20% of the combined company (Yahoo) and will make a cash investment. Google will be the search-ad-partner. Yahoo would spend the money it gets from Time Warner $10 billion buying back its own stock and beating down Microsoft. With Legg Mason, 7% owner of Yahoo opposing the Microsoft offer, the new plan could work. To make this plan come apart at seams unravel, Microsoft has to up the offer by a few dollars per share. I say this again, Yahoo has some serious problems. Buying AOL, already troubled in its own right, is only going to compound problems.

* Yahoo Press Release (link)
* Microsoft’s Response in a press release. (link)

15 Responses to “Yahoo, Google, AOL Strike a Pose for Microsoft”

  1. Marl Balou

    In my view, Yahoo it trying to “cut their nose to spite their face”. They should take the long view here and not get into this “Anyone but Microsoft” posture.

    @Erick – For its high market share on the desktop, Microsoft’s was put thru the wringer by the US Govt and hence their weakened position today, so lets not keep raising the same bogey man. At this point Google needs to worry about maneuvering itself into the same spot on the chess board and Microsoft is completely right from a strategic perspective to raise this issue with the US Govt .

  2. @ ValleyGuy,

    Sorry about the error and catching that for me. I am grateful. I mis-wrote and apologize for that.

    Beyond that, forget what Yahoo needs, I mean if you are an AOL employee, you are getting a clear signal from Time Warner: We would pay to get rid of your business. How about that?

  3. ValleyGuy

    Om — where did you read that twx will give yahoo $10B + the AOL business?

    All that the reports are saying is that AOL will be valued at $10 B and TWX will pay to keep 20% of the share so a net net of $2B to Yahoo.

    Does Yahoo need teh cash so badly that its willing to take up AOL?

  4. why would there be an antitrust problem if a combined yahoo/aol is a customer of google? of course, google will have to drop the $1B investment in AOL in the transaction – a small price to outflank microsoft.

    it essentially would mean yahoo is exiting this market, for which it has every right. and it is not such a bad thing if sponsored search market is showing the signs of flattening out.

    display advertising is where it’s at, and the publishing might that yahoo/aol will have will combine well with the display ad market – combine that with apex, we are looking at a true giant that will not be overshadowed by google.

  5. Rick and Erick,

    IBM (Monopoly), Microsoft (Monopoly) and now Google. Every few decades, a new one comes around. Cycle of business life.

    @ Rick, you nailed it. 10 years from now, Google will be much hated as well.

  6. Erick, if most people are like you and me then nobody really is losing sleep over Microsoft’s pain. Microsoft doesn’t get a whole lot of sympathy these days. In 5 to 10 years, everyone will probably feel the same toward Google. Greed is inevitable.

  7. Does anyone else find this amazingly ironic that Microsoft is complaining about Google having 90% of the search advertising market when they themselves own more than 90% of the desktop operating system market? Talk about the pot calling the kettle black. I don’t know about you, but I’m actually perfectly okay with Google having a monopoly over anything.