Microsoft Circles Back to Yahoo With New Offer

Ian Lamont writes "Microsoft has come back to Yahoo with a new offer that would involve it buying part of Yahoo. No details have been released, but sources told the Wall Street Journal that part of the arrangement would involve Microsoft selling display ads next to Yahoo search results. No word yet on how this will impact Carl Icahn's proxy war with Yahoo's board."

Comments

How's this going to work??

[BlueStile]

Obviously, if MSFT is interested in "Yahoo Search" as an effort to mount a challenge against Google, it isn't really interested in Y!'s technology, but rather its traffic. Obviously, that traffic flows mostly from visits to www.yahoo.com.

Now, if MSFT, say, goes through and buys just the Yahoo Search division, it sounds like Yahoo is free to go become a content/media/etc. company free of worrying about Google and search.

My question: who gets domain over the homepage, Yahoo.com? If Yahoo retains Yahoo, but MSFT owns the little search box on the page, then who decides how prominently the search is featured on the homepage, how it is integrated into the content, etc.? Yahoo would have incentive to make the content front and center, and who cares about the search box...

It might be hard for MSFT to integrate all of Yahoo, but it's even harder for MSFT to integrate part of Yahoo...

I still expect a full acquisition to occur. Whether its $32, $33, or $34 or something else, we'll see...

Re:How's this going to work??

[shanen]

It's like the vulture circling back to the corpse, except in the case of Microsoft it's the old joke: "Patience, hell. I want to kill something."

Re:How's this going to work??

[cp.tar]

I still expect a full acquisition to occur. Whether its $32, $33, or $34 or something else, we'll see...

I was just wondering... Yahoo's stock fell after Microsoft withdrew their original offer. Did it slide all the way back to pre-acquisition-attempt value or did it remain above that?
I knew immediately that Microsoft withdrew only to reduce Yahoo!'s value, but if Yahoo! decide to hold out again, the tactics may prove to be disadvantageous to Microsoft.

All in all, Microsoft is playing catch-up instead of innovating. Somehow, I think they will dominate the search market a year after Linux starts dominating the desktop market.

Re:How's this going to work??

[BlueStile]

YHOO Stock Price (Approximate) Pre-Offer of 31: 19 Immediately after: 30 After initial rejection: 28ish After MSFT walks away: 24 One day later (and since), rumors swirling: 27 After MSFT returns to table: we'll see tomorrow!

Re:How's this going to work??

[DJProtoss]

it didn't drop all the way, and you wouldn't expect it to, since it was pretty likely (but not certain) that MS would be back.

Web advertising

[BadAnalogyGuy]

Maybe I'm the only one missing the big picture, and in turn, the boat on web advertisements. I just don't get it anymore. It seems like such a waste of money to put up web ads when the average web user simply ignores them and the advanced users block them completely.

Media companies have grown huge on advertising, but they have also spent huge sums to produce and purchase programming that attracted viewers. Online content is nowhere nearly as expensive to produce, and the target web audience is much smaller than TV audiences. I just don't see how online advertising can carry a company much farther than they've already come.

I just don't get it. It seems like anyone trying to sell online advertising space is trying to squeeze pennies out of sheep. For all the effort going in to providing these online advertising spaces, I just can't imagine the payoff being that great.

Re:Web advertising

[drawfour]

I completely agree. I ask my friends "when was the last time you intentionally clicked on a web ad, and then actually bought something as a result?". They can't seem to recall. I'm sure there is something to be said for getting the product name out there -- somehow, subconciously, people will remember their product name, but I doubt it's worth that much.

I keep waiting for companies to figure this out, but online advertising keeps growing. I don't get it.

Re:Web advertising

[SuluSulu]

Because regardless of how many hits you get, if you don't tell people that your product exists then no one will ever buy it, and advertising on TV is too expensive, especially, when you are trying to reach a geographically diverse audience.

Re:Web advertising

[rrohbeck]

That's just your and your friends' nerdiness.
A good consumer will click on anything shiny, just like (s)he will sit through 20 minutes of ads per show, and buy something based on the ads. Marketing folks aren't dumb - they're highly paid and rating systems show what works and what doesn't.
I don't know if comparable rating systems exist for web advertising though.

Re:Web advertising

[Anonymous Coward]

I completely agree. I ask my friends "when was the last time you intentionally clicked on a web ad, and then actually bought something as a result?". 2 people, a cat and a dog do not count as an accurate survey.

Re:Web advertising

[Jugalator]

That's just your and your friends' nerdiness. Not really, my parents don't do that either, and I doubt many others also prefer to buy from online shops they are aware of since earlier. It's a trust thing, and people aren't as stupid as you think. Maybe in the early 2000's, but even my mom is reasonably seasoned as an Internet user these days.

So I think it's not specific to nerds to not buy, but rather a special group of ad-buyers that buy.

Re:Web advertising

[pembo13]

I have intentionally clicked on a google ad, more than once, esp. in Gmail where it is even more targeted. The only reason I didn't buy was due to lack of funds. I'm referring to the single line text ads.

Re:Web advertising

[mrcdeckard]

you certainly are missing the big picture, but i'm sure you're not the only one. the long and the short of it, is that google adwords *work*. maybe not on you and your friends, but in the big picture, they do. microsoft understands this.

google hit the advertising "holy grail" with adwords -- although no one has said/realized it, adwords are what the marketing industry has been wishing for since freud's nephew invented it -- specific and contextual advertising.

before adwords, advertisers mostly had to throw a bunch of shit at the wall and hope that some stuck. billboards and subway ads are a good example. anybody and everybody sees that ad, so if you have a niche or specific market, you have to advertise to 10k people to get to your 100.

radio and newspapers are a bit better -- if you want to advertise your new cat food, you can call the publishers of "cat fancy", and hit closer to the bulls' eye.

adwords allow advertising to a demographic of one. if you sell gloves that are missing the middle finger on one hand (for people who've lost that finger), you could theoretically dial in your adwords to catch that person.

adwords and gmail make it even more powerful. now, instead of catching people who are actively searching the web, you can just filter their email.

i use gmail, and i have actually clicked on a few adwords because i had sent an email to someone asking if they had xyz for sale, and the adwords threw up a link to an online store that did.

adwords are NOT banner ads. they're specific, they're not obnoxiousm, and they work. this is the piece of the pie microsoft wants to in on, and they're trying to acquire yahoo (at least their traffic) to do it.

i may be going too far here, but if they don't get yahoo, they're going to lose out on the (consumer) desktop in a big way -- is there a part of their business that isn't slipping?

mr c

Re:Web advertising

[Korin43]

You're missing the point. These are still people YOU KNOW. There are people who click on ads, people who think the blink tag is useful, people who pay AOL for their dialup, etc..

Re:Web advertising

[RiotingPacifist]

Marketing folks aren't dumb - they're highly paid and rating systems show what works and what doesn't. you dont think the marketing folk would lie to the PHB and pretend to make a difference.

your 1/2 right in your post anybody informed (not sure that's the right word, but meh) enough to read slashdot will have friends that are smart enough not to go, ooooh shiny, clicky, clicky, but I think something has to be said for the fact that marketing folks tell the higher ups their important and sell THAT message really well.

Re:Web advertising

[Kalriath]

I uncheck the "Show Ads" box in Gmail. Strangely, the section of UI that usually shows ads looks like a big empty space. You can tell they designed it around the ads.

Re:Web advertising

[DrEldarion]

It's even better than just the targeting. AdWords + Analytics lets you know what you're getting conversions off of and what you aren't. So if you spend $100 on two ads and one is profitable and one isn't, you can dump your budget into the one that's making you money and abandon the other one.

Relevance to users is great, but conversion tracking is the best part of internet advertising.

Re:Web advertising

[Graymalkin]

Advertising is most effective when it is relevant to the person seeing it. Web advertising was like magazine advertising for a long time. You offered got paid a very small amount of money for a unit of space for every visitor to your site, more if they clicked and ad and even more if they actually bought something. In order to get ads on your site you as the webmaster would fill out a form telling the advertisers what sort of content you typically posted. A video game website would say their content is about video games so advertisers would display ads relevant to people reading about video games.

What Google (and others) have done is take that process a step further and figure out automatically what ought to be relevant to each individual website visitor. If someone buys AdWords for an upcoming game and someone writes about that game on their website ads for that game will appear specifically on that article. The actual content of websites is now valuable to advertisers, not just the number of ad pixels on the screen. While video games might be relevant to the readers of Joystiq and an for a particular game shown to a Joystiq visitor reading an article about that game is super relevant. Someone can not only read about Super Deluxe Fun Time Solitaire but buy it right then and there.

Besides anonymous targeted advertising Google, Yahoo, and Microsoft all have the ability to mine their millions of user account profiles to target ads specifically for individuals. Microsoft has linked up Passport accounts with their various MSN services, Hotmail, and XBox Live. MSN can thus correlate tons of online behavior and sell individual behavior to advertisers. They know what games people are playing on XBox Live, who their MSN Messenger and XBox Live friends are and what they're playing, things they've bought on MSN Shopping (or their affiliates) recently, and what their recent browsing behavior is (to sites with MSN advertising), and what sort of e-mail they're getting. With all of this they can make some pretty good guesses about what that person might buy in the immediate future. If they're browsing Joystiq and have been playing a lot of Halo 3 and were searching for Quake Wars reviews the next ad they might see is one for Quake Wars. Microsoft wants Yahoo because that's tens of millions of more user profiles to mine for advertising data.

Re:Web advertising

[weave]

I bought my car in October based on a banner ad. It was an ad for a car named Honda Fit that I had never heard of before. I wanted a small car that had a decent amount of hauling capacity. So I clicked the ad, read the blurb, then went about doing a lot of other digging about the car, joined a Yahoo group for the Fit, etc, etc.

Re:Web advertising

[Frekko]

We should get an answer to this once and for all by the means of a serious and infallible slashdot poll!

Re:Web advertising

[pablomme]

if you sell gloves that are missing the middle finger on one hand (for people who've lost that finger), you could theoretically dial in your adwords to catch that person. Easy, they'll be looking for "glovs" on "www.googl.om".

Re:Web advertising

[v(*_*)vvvv]

If an ad is clicked in the forest, does it still make a sound?

"click!"

Re:Web advertising

[gtall]

I think there is a difference between a sponsored link and your generic web ad that one might get on site frequently visited for information and that gets updated daily like a news site. Most people probably ignore those out of necessity since they visit the site too often to waste time on the ads.

However, there have been times when I've been interested in some item, like a particular kind of pen I'm partial to, and Google will return retailers' links. Granted, these are not your typical web ad but more of a simple (paid for) link. But I have clicked on them simply because I want to buy the product.

Gerry

Re:Web advertising

[AtariDatacenter]

I wrote a longish reply about this (below). Sure, there is a component of this that is to augment microsoft's web based advertising. No question.

What is really the motivation for this transaction is that Microsoft got caught with its pants down in an emerging field. Again.

A new Internet is developing. (No, really. Hear this one out.) An Internet that is centered around your location (your GPS coordinates) and where you currently are, and what is around you. If the Internet, to date, brought you access to the world, then the next generation of Internet services will bring you access to your community (or will bring your community access to YOU!)

Think of all your data, all your requests, everything, but tagged with GPS coordinates. What fun services can you provide? GPS + Flickr = location and time based picture sharing. Went to a concert? Easily get photos from other people who attended the same event. See? Internet + GPS = fun.

Guess what also can be location based? Yup. Advertising. I won't get into the whole host of ideas here (online coupons, business search with advertising, favored search results, etc etc) but there is a great opportunity here. If people are currently using the Internet to market to the nation/world, then perhaps a different group of people will want to use the Internet to advertise to people in their own community.

For example, a mom-and-pop sandwich shop. Trying to find a good sub shop to go to for lunch? The mom-and-pop business can pay for favored search results. Perhaps dangle a digital coupon to entice your business. A completely different advertising customer and advertising model than we have today.

Microsoft totally has its pants down on the local Internet that is developing behind the scenes. Microsoft will be handing out the money all over the place to build the empire that they neglected to develop themselves. One that Google is totally dominating.... and it isn't even out there to the public... yet.

Ichan Will Force Yahoo's Hand

[CodeBuster]

As soon as Carl Ichan got involved it was almost a forgone conclusion that Microsoft would be back to deal with Yahoo given Ichan's reputation for bringing together bickering parties in merger deals which deliver value to the shareholders (including Ichan). I had previously predicted that Yahoo would be able to resist a takeover offer from Microsoft (that was before Ichan got involved and started buying millions of shares) but even then I thought that it was a bit strange for Yahoo to turn down a 70%+ premium on their share price (initial offer of Microsoft) to be acquired (a good price by almost any recknoning, irrespective of the long term outcome of the merger). The onus will now be upon the Yahoo board to detail their plan to the shareholders and prove that they can offer a better value with a Google partnership (which seems to be their proposed direction) than Ichan (who will push for resumption of talks with Microsoft in light of a limited alternative pool of qualified bidders) can with a resumption of talks and possibly a sale to Microsoft. Even if Yahoo manages to hold off Ichan, they would really have to outperform in the next 3-5 years to beat the upfront 70%+ premium that they originally turned down to remain independent and the prosepct of a protacted duel with Ichan will make that independent stance even tougher to justify in the months ahead (possibly allowing Ichan to buy up more battered Yahoo shares and strengthen his hand even more).

Re:Ichan Will Force Yahoo's Hand

[weave]

Icahn did absolute wonders for TWA when he bought them, and many other companies

/sarcasm

If Icahn gets control and Microsoft doesn't buy it all, expect Yahoo to be broken up into little pieces and sold off bit by bit if that's determined to be the most profitable thing for him. We may be seeing that happen now. Icahn gets a Board in there friendly to him, Yahoo only sells search to Microsoft, then starts selling off what's left to other companies.

I'd suspect if Microsoft buys all of it, I bet they absorb search and sell off the rest as well.

Yahoo! Is! Dead! and doesn't know it yet.

What's the MS kill list for this year

[pembo13]

ISO,OLPC... soon Yahoo? Also, who is paying for all the Novel-Microsoft ads all over the internet?

Re:What's the MS kill list for this year

[Eighty7]

Admiral Ackbar was right! About ... EVERYTHING!

Headlines after the merger

[Anonymous Coward]

Icahn Forces Yahoo To Pick Up The Soap!!

Microsoft Embraces and Extends, Upon Completion Balmer Shouts YAHOO!!

Freedom a la Microsoft

[shanen]

Basically Microsoft is using their cash clout to destroy the value of other companies. If you don't sell out when they ask nicely, then they'll just make you a worse offer once the turmoil sets in. Microsoft figures they asked nicely, eh?

Other times when their nice asking was refused, Microsoft just created an approximately equivalent service or product and swallowed the losses until the original company was destroyed. I think Palm was probably the best example of that, though it's quite a stretch to call Windows Mobile even vaguely similar. (Actually, in that case they did most of the damage by using advertising to drive Palm away from their original objectives.)

I love freedom and democracy, and therefore I conclude I must hate Microsoft. Freedom is about informed choices among real options, not limited to choosing today's flavor of Microsoft's poisonous cruft. They should cut Microsoft into four or five pieces and force them to compete against each other and against Linux and Apple. That would give us real choices and lead to much faster development of much better software. It would also prevent any part of Microsoft from getting so fat as to go around destroying other companies and other markets, Yahoo and online advertising merely being the latest targets.

Re:Freedom a la Microsoft

[Anonymous Coward]

Basically you don't understand business. If you love freedom and democracy, then instead of irrationally hating Microsoft you should rationally aknowledge that Yahoo sold out to the public to make money in trade of freedom. They also had the freedom to go to other companies for a better offer, which they tried to do, and failed. Do not confuse their failure to retain private ownership or to find a better bid as a lack of democracy. Rather, what we see unfolding is truly the result of freedom (except mayve anti-trust concerns limiting Google's ability to bid).

Optimal strategy for Microsoft now

[Animats]

• Wait for Icahn to get a majority on the board.
• Cut a deal with Icahn for the parts of Yahoo they want.
• Let Icahn find buyers for the rest of the assets.
• Profit!

This makes more sense than buying the whole company, which is way overpriced and overstaffed for its revenue. All Microsoft really needs, after all, is the brand, so they can drive traffic to MSN.

Match Made in Heaven!

[FurtiveGlancer]

I've always thought of M$ as a collection of smart, but arrogant yahoos. Now they can bully their way into buying the domain name that fits them best. [flame off]

Why?

[Nomen Publicus]

I'm still not convinced that we know why Microsoft wants Yahoo. Is there nothing else that Microsoft can do with $40 billion? Is there no Microsoft service or product that needs more investment?

Re:Why?

[religious freak]

That is what I wonder too.

I am not an anti-MS troll at all, but I do think this highlights MS weakness. Perhaps the entire company did revolve around Bill, and with him stepping out more and more, it seems to directly correlate to the loss of innovation and competitiveness at MS. They were not able to turn themselves on a dime to adapt to the Internet as I believe they needed to about 10 years ago. Google is consistently coming up with AMAZING stuff that MS isn't even close to matching (have you actually tried to use your hotmail account lately?)

It's getting very obvious now.

Re:Why?

[daemonburrito]

I agree.

My pet theory is that they are actually out to destroy competing application platforms, in this case LAMP(php) + YUI.

Re:Why?

[ardle]

Is there nothing else that Microsoft can do with $40 billion? It's not their $40 billion. Well, only ~$20bn is. The rest of the cash is going to come from loans, remember?

Who's going to lend MS $20bn to buy a Web company?

Who's going to lend them $20bn to buy an advertising company in a recession?

Re:Why?

[hostyle]

Its not exactly going to be a 100% mortgage. MS make money - a lot of it - from OEM OS sales and Office. Financial institutions will be falling all over themselves to get a grasp of that empire.

Google make a hell of a lot of money from ads, and this is what this buy-out is about in the end, competing for some of googles ad money. Financial institutions love money, so how exactly can they lose here?

Ad Crumenum Fallacy

[PinkyDead]

WRT Mr Icahn...

Just goes to show that just coz you have a shed load of money, doesn't mean you have the first clue how you got it.

Maybe the board of Yahoo actually know what they are doing, because Microsoft seem to want this so bad, it hurts.

Not so bad

[acb]

As long as Yahoo gets to keep its open technologies (the Flickr API, Pipes, &c.), that's fine with me. Let Microsoft spend their cash reserves on a second-tier search engine.

Having said that, it's probably still prudent to back up your Flickr and del.icio.us accounts, especially if you don't use Windows.

Ballmer is crazy

[LinuxFreakus]

The proposed deal didn't make sense before, and it makes even less sense now. If Microsoft takes just search from yahoo, then the rest of Yahoo will be irrelevant within a year. Yahoo would be stupid to give up search.

The only way this can end well is if Microsoft just backs away and pretends that none of this ever happened.

There is just no getting around the fact that Yahoo is itself struggling to survive against google, and Microsoft has already pretty much admitted they can't compete with Google in search... I mean, didn't anyone ever tell Ballmer that two wrongs don't make a right?

Re:Ballmer is crazy

[Colonel Korn]

Ballmer is an executive leading a company. The job of such a person is to immediately make a large and costly change in the company. The change itself is determined almost at random - these people aren't particularly good at analyzing this sort of thing. Just take a look at the success rate of this sort of project taken on by a company's new CEO. Sometimes it works, and a bit more often it doesn't. It's just a roll of the dice.

The point is that if it doesn't hurt MS, Ballmer comes off looking good. He did something that shaped the industry, and it didn't fail. If it turns out great, then Ballmer is a visionary. If it fails miserably, he takes his massive fortune and gets a job either with a lower profile company (ooh, our new CEO is the guy who just ran MS!) or with a politician (like Carly Fiorina and McCain). They don't know what will work going in, but they win no matter what. They excel at one thing: advertising themselves.

There are exceptions. Bill Gates, no matter what else you say about him, wasn't a wild gambler. He cared about the company itself, for obvious reasons. Ballmer, though, is no Bill Gates, and to him MS is a company, not an identity.

Reason: The core of Microsoft's interest

[AtariDatacenter]

I wrote paragraph after paragraph here, but nobody will read it. So let me condense:

This deal IS and always WAS about search. But not so much today's search. Tomorrow's search. Microsoft is playing for a market that exist... yet.

Online service are going to get a new focus, which is based on mobile computing and GPS. Your GPS coordinates will become a very valuable piece of data in numerous new online services, and will add flavor to existing services.

This will open the door to what I call the "local Internet" or the "location-based Internet". If the Internet to date has brought people access to the nation or the world, the local Internet will bring people greater information/access in their own communities.

Google is so far ahead of everyone else in this field, it is laughable. They've been playing the game well in advance of everyone else. Microsoft has almost nothing. Yahoo appears to be the second place player (and I'd argue a distant second).

Microsoft needs to play catch-up in the field that they, once again, recognized too late. Acquisition.

So, the deal may have the blanket of "search", but the desire behind it is more specific than that. They are looking to get their foot in the door of the NEXT generation of Internet services, specifically, Local Internet search.