Microsoft/Yahoo: Killing the Deal, 101

Last post for a while on this, unless news breaks, but something just for fun: Let’s say you’re advising Jerry Yang and the Yahoo board, and they don’t want to do the deal. What would you advise them to do?

Anything about value-creation, 100-day plans, and strategic arm-waving won’t fly. That sort of thing will have shareholders at your metaphorical door carrying pitchforks and waving lawsuits. Killing the deal requires immediate action, not fuzzy happy-talk about Yahoo’s inimitable wonderfulness. Even big layoffs wouldn’t likely do it, as it would be seen as a scorched-earth strategy intended to break the company, not fix it.

So if you wanted to kill the Microsoft deal, what would it take? In a word, Google.

Your recommendation to Yahoo would be that its single and best option is to immediately cut a deal with Google to outsource Yahoo’s floundering search platform. Yahoo would maintain content, community, etc., and all search would go to erstwhile competitor Google. Given higher and better monetization, and reduced costs on search engineering, the hypothetical anti-Microsoft deal would likely be a 15-25% bump to Yahoo’s value. Granted, it doesn’t create as much short-term value as Microsoft’s outsized bid, but it is coherent, timely, and constructive.

Ironic, huh? Yahoo needs Google to save it from Microsoft to save it from Google. It’s about as convoluted as last night’s Lost season premiere, but it does make its own sense.


  1. Interesting that Google wouldn’t be allowed under any circumstances to BUY Yahoo due to dominant market share combination in search, yet Google WOULD be able to have said Yahoo search outsourced to it, thereby giving it the same (albeit not Google-branded) vastly more dominant share of search than it currently enjoys, a certain death knell to MicroSearch (“knell” is a great word for this situation, btw). I’m taken with that idea now – who would Yahoo despise more and want to injure more: Google or Microsoft? And if they DID follow the outsource-to-Google route, they would remain independent for their remaining properties, which is their DNA and always has been, shareholder pitchforks be damned.

  2. Yeah, I’m sure this option is being discussed at both Google and Yahoo, but I have to imagine it’s awfully low probability. Then again, there is no love lost at Yahoo for Microsoft, so a high-risk, out-of-the-sun maneuver like this isn’t inconceivable.
    Trouble is, of course, it should have happened months ago …

  3. Lets assume that Yahoo does successfully outsource search/advertising to Google based on a revshare deal, who is to say that Google won’t turn around in due time and restructure the deal in their favor, especially when yahoo will no longer have an in house alternative (good or bad) to turn to?

  4. Paul, if I didn’t know any better, I’d say you orchestrated the bid on the Friday before Money:Tech..the crowd is going to be buzzing.

  5. This can’t be the way Jerry, David and the gang want to go out. This deal only makes sense if management/board are exhausted and just want to cash out.
    Otherwise, it makes no sense to see your baby grow up and marry the wrong person for money. I’m not a MSFT hater, they just don’t do web very well. I use Windows, Office, etc. but never visit their online properties.
    As such, I don’t see YHOO taking the deal. I do see them making or trying to make the necessary moves to continue on their own terms. If that means outsourcing search to Google, they’ll take it.
    That’s my call.

  6. Paul, just wanted to say this is great commentary all around on the deal (the best I’ve seen thus far). Given how long Yahoo has avoided both deals (MSFT acq. and Google partnership), will be interesting to see if they finally capitulate. I almost think they would be less likely to outsource search to Google… big pride issue considering they had a chance to buy it way back in 2002… worst deal to pass on, ever.

  7. And they do like Google? Wha?

  8. Paul
    As usual you are on the money. Great job on all the posts. I have pretty much not gone to techmeme and stuck to following your lead on twitter.

  9. Paul, the reason that “dog” of Yahoo is suddenly worth so much again is because of that “floundering” search platform. I mean, why would you say that? Yahoo largely maintains share over the past year; Microsoft generally declines, and Yahoo’s got a problem? If it had dumped search as many people keep saying, it wouldn’t be worth near what Microsoft wants to pay for it right now.

  10. James Debar says:

    George, thoughtful comment on a great blog.
    Good for Microsoft for having built such an enormous ‘cash horde’ enabling such a generous offer, nevertheless Jerry and David should bring in some FRESH OUTSIDE VISION and lock it up in a room for a month for constructive input.
    Note to Jerry Yang and David Filo: Allow yourselves to get creative. Unfortunately that won’t happen if you restrict yourselves to your current Board. You have numerous positive alternatives facing you. Don’t let the setbacks of the past two years cloud your thinking. You are still in control of a great company. Bill Gates doesn’t really need you in his stable. He has enough on his plate. Do the right thing for yourselves, your employees, as well as your shareholders . . .
    . . . and running to Google isn’t your answer. Best wishes on opening the right doors and walking through them.

  11. Giving up the search+ad game to Google would mean game over for Yahoo – Google would then just proceed to squeeze Yahoo like any other content company. Overtime Yahoo would lose relevance in world where content is so easy to produce.
    My money is on Yahoo accepting Microsoft’s offer. And Microsoft then managing to kill what little spark remains at Yahoo. Why? Microsoft is facing the ‘incumbent’s dilemma’. The hordes of bright people working at Microsoft are unable to release product for fear that they will canibalize Microsoft’s existing revenue streams. Meanwhile Google is acquiring Microsoft one customer at a time.

  12. james debar says:

    P.S. to Jerry Yang and David Filo:
    MS is just kidding. It doesn’t really want to purchase your company. It needs to distract some beauraucrats in Brussels. Plus it just doesn’t really want the headaches of such a complex multi-cultural merger, and isn’t into reading headlines in 9 months about thousands of ‘former’ Yahoo employees asking for handouts on the streets of Palo Alto . . . bad for image.
    Now’s your chance to make a couple of Large acquisitions. You can get them done before Spring becomes official.
    Hint . . . ‘transaction processing’. You dominate MS and Google in some areas where new technologies in this sector will pay off.
    Get inspired and Happy hunting.

  13. hey, last night’s LOST wasn’t that bad!

  14. Don’t suppose there is enough ownership concentration for a LBO. Don’t even know if there would be the interest.