Since buying out Yahoo! seemed too expensive, Microsoft is back again with another offer. Microsoft's Statement:
In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo! Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.
There of course can be no assurance that any transaction will result from these discussions.
Comparing Google Click Prices to Yahoo! Search Marketing Click Prices
What type of clicks are likely to be driven by arbitrage and other syndication partners? Arbitragers are more likely to go after high value keywords, thus driving down their value. Buying a valuable keyword like "mortgage" on Google costs much more than it does on Yahoo!.
I did not enter bid prices in the above tools. Those were the default bid prices the tools suggest for mortgage. The difference in click cost is an indication of how much Yahoo! is undermining the value of their own traffic to prop up syndication partners that funnel dirty traffic through the Yahoo! Search Marketing ad network. Even when I slid the Yahoo! tool all the way to the right it said the estimated click cost was $4.98 - less than 1/3 of Google's suggested price.
Yahoo! has to sell 3 mortgage clicks to make as much as Google makes from 1, but Yahoo! sells a couple of those clicks through syndication partners which keep most of the ad revenue.
Yahoo! Search Syndication Blows
Advertisers Are Forced Into Ad Syndication
Because Yahoo! makes it hard to opt out of search syndication they are essentially paying shoddy syndication partners 70 to 80% payout for arbitrage that builds volume, but destroys the value of Yahoo! Search.
Put another way, a Yahoo! click for mortgage is worth the same $15 that it costs on Google, but it goes for less than $5 because Yahoo! forces advertisers to eat junk traffic too. If Yahoo! virtually killed off their syndication partnerships (at least all but the cleanest ones) their short term revenue might decrease, but their click values & click prices would sharply increase.
Google AdWords to the Rescue?
Google is Not a Viable Solution
Yahoo! mentioned the possibility of syndicating Google ads if the Google ads paid more, but if they do that then Google gets Yahoo!'s best inventory while Yahoo! Search Marketing advertisers buy random mystery meat traffic. What exposure do you get from a Yahoo! Search Marketing ad account if your ads do not appear on Yahoo!? Sounds a lot like Looksmart to me.
If They Syndicate Google Ads, Yahoo! Search Marketing Becomes a Market for Lemons
Yahoo! already has less traffic and lower quality traffic than Google. If they outsource their best traffic to Google savvy marketers will quickly talk about how Yahoo! has low quality and you should just advertise with Google. The perception of market decay and market whispers will only accelerate the decay. When it comes time for Yahoo! to renew with Google they would have lost most of their leverage.
Once again Yahoo! may find a way to pump their short term numbers, but it is not a strategy they should try building their business around. The first step to restoring value to their search results should be making it easy for advertisers to opt out of ad syndication. If they syndicate Google AdWords most advertisers should just opt out of Yahoo! all-together.
Microsoft decided to walk on the Yahoo! deal. After the sharp Yahoo! stock decline Monday, expect many shareholder lawsuits. The press release contained the following open letter to Jerry Yang.
After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.
I first want to convey my personal thanks to you, your management team, and Yahoo!'s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.
I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.
In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.
Also, after giving this week's conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.
We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:
First, it would fundamentally undermine Yahoo!'s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
Given this, it would impair Yahoo's ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.
It could foreclose any chance of a combination with any other search provider that is not already relying on Google's search services.
Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft's proposal to acquire Yahoo!.
We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.
I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.
But clearly a deal is not to be.
Thank you again for the time we have spent together discussing this.
/s/ Steven A. Ballmer
Steven A. Ballmer
Chief Executive Officer
Any guess as to Yahoo!'s closing share price Moday? Vote on this poll and guess below. If you are the first person to guess within a dime you get a free month of access to our online SEO training program.
Yahoo! Inc. a leading global Internet company, announced today that it will begin a limited test of Google Inc.'s AdSense for Search service, which will deliver relevant Google ads alongside Yahoo!'s own search results. The test will apply only to traffic from yahoo.com in the U.S. and will not include Yahoo!'s extended network of affiliate or premium publisher partners. The test is expected to last up to two weeks and will be limited to no more than 3% of Yahoo! search queries.
Anyone who syndicates Yahoo! ads or operates a business that relies on selling clicks has to be concerned with this news.
Yahoo! has guys like Jeremy Zawodny marketing their fresh new search platform, and yet they remain behind the competition. Microsoft jumped into the search field way later than Yahoo! did, so why is it that Microsoft rankings for well promoted sites often roughly track Google rankings, while Yahoo! still has yet to give many of these sites an opportunity to rank?
Here are some examples of what I am talking about (with URLs expunged to protect the guilty)...
A couple year old site that was lingering about with a few inbound links and was promoted last November. Notice how quickly both Google and Microsoft took to the marketing, whereas Yahoo is still nowhere to be found
Here is a site that was promoted from brand new. Notice how Google and Microsoft are trending toward trusting it more and more, while Yahoo! Search occasionally picks it up and then spits it back out again
Here is yet another newish site that Microsoft loves and Google is starting to like more and more. Yahoo! is still nowhere to be found
If you had to pick the 1,000 most competitive keywords on the web I think all 3 of the above would fall in that group. I could list numerous other example sites as well. All the above sites have been in the Yahoo! Directory for at least 4 months. Even with new sites and a moderate amount of targeted promotion it is not that hard to work your way up into Google and Microsoft's rankings, but Yahoo usually ignores it.
One of the biggest things holding back Yahoo! Search is their preference for Yahoo! content. As a shift in strategy, Yahoo! announced they are opening up their search results to third party data integration. Instead of a typical search result, some of the results with third party data may look like this
Yahoo! will turn on third party data for some leading sites by default
Google requires you to learn their proprietary confusing language AND promote Google, Google Search, Google Subscribed Links, AND get your users to subscribe for you to get any additional exposure (and yet they wonder why it hasn't taken off yet)
Through different strategies both of the top 2 engines are turning their search results into destinations. Worth watching as it progresses. More information available at Search Engine Land.
Does it make sense for MySpace profile pages to rank on the first page for one of the 10 most competitive terms on the web? Should English to English page translations inherit domain authority from another domain? I don't want to out anybody, but I see way too many tag pages ranking in Yahoo!'s search results. The easiest way they can improve their search results is to simply delist any page with tag in the URL.
If they continue down this path inside a few months they will link to nothing but internal site search / tag pages on other sites. Where is the value, innovation, or thought process in that? What percent of Yahoo! searchers want to see Wordpress.com tags pages and how many Yahoo! Pipes pages are tagged with a brand name? What does a searcher do when they land on a page like this?
If you are going to trust user generated content on authority sites, expect a lot of users to create content just for Yahoo!. :)
Yahoo! killed off their brand universe project, and recently fired 30 people. Rumor has it that about 2,000 more layoffs might be coming soon. Yahoo! shares are nearing $20, trading at $20.78, and giving them a market capitalization of $27.8 billion.
This WSJ article highlights that about half of Yahoo!'s value is in cash and equity stakes in Alibaba and Yahoo! Japan. Over the last year Yahoo! lost significant momentum and marketshare in search. They need to outsource search and search ads, fire a bunch of employees, gain search marketshare, or there is going to be a buyout or merger before the year is out.
Pageviews Still do Not Have Much Value
Sidebar: to anyone hyping the value of pageviews and social media, think of how many pageviews Yahoo! has. If you pull out the value of Yahoo!'s large equity stakes in other companies and cash on hand, Amazon and eBay are each worth about 2 to 3 times Yahoo!, and Google is worth about 13x.
10 Key Ideas Yahoo! Needs to Implement Tomorrow (or Sooner)
After seeing the underwhelming launch of Wikia Search, I think Yahoo! should push further in human aided search. Relevancy is based on perception and marketing. Yahoo! needs to do the following if they want to compete in search:
Increase the relevancy of their directory by actually featuring it (the directory looks like a sidebar to a blog that occupies most of dir.yahoo.com), and by becoming more selective with what sites they accept. You can appreciate their bad marketing of the Yahoo! Directory by the fact that the Google Directory (a DMOZ clone) has a higher PageRank.
Yahoo! is testing integrating Del.icio.us data in their search results. Brand Yahoo! search as human edited safe search and find a way to pay end users for their contribution. Payment does not need to be monetary. Take a look at the success of Yahoo! Answers and Del.icio.us and apply those toward search. Google gives Checkout advertisers free ads and a higher ad CTR (which leads to a lower ad cost). Win search marketshare from your users by giving them rebates on your other products as well.
Create a branding and awareness campaign around the new Yahoo! Search. Hire someone to do a fake study proving that Yahoo! Search is more relavant than any of the other players. Make sure Ask or Microsoft is ranked #2 ahead of Google.
Let users comment on search results AND on listings in search results. Controversy surrounding this will lead to more people talking about and evaluating Yahoo! Search for quality.
Launch a new toolbar with a meter like PageRank in it...call it YourRank (or something the emphasizes to the user) that it is their web and what they like. Heavily push that branding message to users locked into Yahoo! email, Yahoo! Stores, and other verticals they interact with.
Create a well branded specialty search for bloggers with innovative features that make it easy to follow the conversation both ways. Also launch creative ideas to buy mindshare with other high authority communities (universities, open source projects, etc.).
Easily allow advertisers to do keyword research on Yahoo! outside of while they are setting up search campaigns. Create a reliable publicly accessible keyword tool which actually markets the Yahoo! Search product.
Give away a lot of useful search market data (like Microsoft recently did with their Ad Intelligence plug-in).
Put the Yahoo! brand on the millions of syndicated domain landing pages they power each day.
Increase the relevancy of their contextual ad product and increase payouts to 100% (buy marketshare) BEFORE Microsoft openly launches their network. Perform case studies with publishers who saw their Yahoo! monetization go up AFTER switching from AdSense (and other inferior networks) to the NEW Yahoo! Publisher Network contextual ads program. Perhaps pay key leading bloggers 150% just to get them using, talking about, and giving feedback on your ads. Buy marketshare...
How Could Yahoo! Become Relevant?
Do you still use Yahoo! Search? What could Yahoo! do to make you want to use them and talk about their search product?
Invest in Wikia search and share technology with them to attack Google from multiple fronts. Google engineers have openly admitted to frequently hand editing the search results. Now that search is back to being about people tell the USER that it is their web and THEY own it.
What if you assumed you already lost the search battle and decided to counter Google by being open about search, and being actively involved with the webmaster community? What is the worse that can happen? People start talking about you, trying your product, giving you feedback to improve your product, talk about you, and you gain marketshare. Oh no!