Yahoo! fobs off Microsoft, snuggles up to Google

13 Jun 2008

Yahoo! and Microsoft discussions about a possible or partial acquisition of the latter by the former have officially concluded with no deal being done, while Yahoo! has signed a major advertising deal with search rivals Google.

The conclusion of discussions with Microsoft follows numerous meetings and conversations regarding a number of transaction alternatives, including a meeting between Yahoo! and Microsoft on 8 June in which Yahoo! chairman Roy Bostock and other independent Yahoo! board members participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested.


With respect to an acquisition of Yahoo!’s search business alone that Microsoft had proposed, Yahoo!’s Board of Directors has determined, after careful evaluation, that such a transaction would not be consistent with the company’s view of the converging search and display marketplaces; would leave the company without an independent search business that it views as critical to its strategic future; and would not be in the best interests of Yahoo! stockholders.


Yahoo! also announced an agreement with Google that will enhance its ability to compete in the converging search and display marketplace, advancing the company’s open strategy.


The agreement enables Yahoo! to run ads supplied by Google alongside Yahoo!’s search results and on some of its web properties in the US and Canada. The agreement is non-exclusive, giving Yahoo! the ability to display paid search results from Google, other third parties and Yahoo!’s own Panama marketplace.


Under the terms of the agreement, Yahoo! will select the search term queries for which – and the pages on which – Yahoo! may offer Google paid search results. Yahoo! will define its users’ experience and will determine the number and placement of the results provided by Google and the mix of paid results provided by Panama, Google or other providers.


The agreement applies to paid search and content match and does not apply to algorithmic search. The agreement also applies to current partners in Yahoo’s publisher network.


“We believe the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry,” said Jerry Yang, CEO and co-founder, Yahoo!. “Our strategies are specifically designed to capitalise on this convergence and this agreement helps us move them forward in a significant way. It also represents an important next step in our open strategy, building on the progress we have already made in advancing a more open marketplace.”


“This agreement provides a source of funds to both deliver financial value to stockholders from search monetisation and to invest in our broader strategy to transform display advertising and advance our starting point objectives with users,” said Yahoo! president Sue Decker. “It enhances competition by promoting our ability to compete in the marketplace where we are especially well positioned: in the convergence of search and display.”


Yahoo! believes this agreement will enable the company to better monetise Yahoo!’s search inventory in the US and Canada. At current monetisation rates, this is an approximately US$800m annual revenue opportunity. In the first 12 months following implementation, Yahoo! expects the agreement to generate an estimated US$250m to US$450m in incremental operating cash flow.


The agreement will enhance Yahoo!’s ability to achieve its goal to grow operating cash flow significantly, while at the same time providing flexibility to continue to invest in ongoing initiatives, such as algorithmic search innovation and search and display advertising platforms. It also gives Yahoo! complete flexibility to continue to use its Panama paid search results.


By Niall Byrne