One of the longer bomb predictions made by a number of analysts and pundits in the past 12 months has been the following: Microsoft will take its pile of cash and massive market valuation and buy Yahoo. Hell, I even suggested it. The logic goes something like this: Combine the two companies’ reach and search share, their CPM advertising businesses and various other plays, and you have a behemoth that can take on Google.
Fine, except I don’t buy it anymore, mainly because I think both companies are not well positioned to deal with a successful merger. And, I think there might be a better way. Now, those of you who read regularly may recall my LiveSoft post a year ago, in which I suggested that Microsoft set its Internet businesses free. Well, thanks to many folks who work in the industry (and one in particular who will remain anonymous for now), my thinking has evolved. I no longer think Microsoft should spin out LiveSoft, nor do I think it should buy Yahoo. Instead, it should roll out a new company that focuses on one thing: Search monetization. But it shouldn’t do it alone. Instead, it should be a joint venture with Yahoo.
Hear me out. Everyone knows how difficult it’s been for both Yahoo and Microsoft to beat Google at its own game – search. Yahoo has been beat up for years over its lackluster monetization efforts – after initially gaining plaudits for its bold purchase of Overture. And over at Microsoft, search is still at the Windows 1.0 phase, and the rumblings I’m hearing out of Redmond are not encouraging. People are leaving, search share is dropping, and recruitment is tough.
But then again, both companies bring a lot to the table. Yahoo did a great job combining several engines into one solid organic search performer, and early reports on Panama are also solid. Microsoft has an innovative approach in its demographically-driven AdCenter. Both companies have significant traffic of good intent. For building search companies, Yahoo is in the right location. Microsoft has huge market cap and cash. Both need to do something, quickly, to prove to Wall St. that they can compete with King Google.
So why not join forces, like back in the good old days when Overture fed both Yahoo and Microsoft? Such a venture solves any number of tough problems. For example, it lets Yahoo and Microsoft focus on what they are good at. For Yahoo, that’s digital lifestyle applications and services and the CPM ad revenues that come with them; for Microsoft, it’s Windows and Office (and MSN, I guess….). Despite the packaged goods mentality displayed by the “well, we’re done with Vista, now we can focus on search” approach, the initial response to Vista is proof enough Ballmer & co. might want to keep its engineers focused on the product that drives the majority of your revenues – Windows. And little birdies all over the Valley tell me folks at Yahoo are tired of the search-driven fire drills there, they want to get back to the cool stuff like Pipes….
A second and substantial reason to do this is to stop trying to kill each other in the race to catch Google. Separately, neither company is going to catch Google anytime soon. Why not work together, combine resources, and give the world what it really wants – a legitimate answer to Mountain View?
The company might work like this. Because Yahoo is further along with Panama and YPN than Microsoft is with AdCenter, Yahoo gets more credit in the JV for that asset class. Microsoft, because it has more cash, funds the lions share of the JV. Should each company also toss in organic search? To be discussed, but not necessarily required.
The new company, let’s call it Soverture, is owned 50% by each party. Each party also throws in – and this is very important – a long term (ten years?) contract binding it to using Soverture’s services in both direct search monetization (AdWords) and across its properties where it has a syndication play (Facebook, eBay international, etc.). Top talent is assigned into the company, and it’s located in the Valley, so recruitment is easier.
Soverture is then released to develop a killer search monetization solution, one that is unfettered from the current political and structural woes of its parent corps. Spin another 20% out in an IPO, and set the company on a path of providing an alternative to AdSense. The timing is perfect – a ton of AdSense contracts are coming up soon (Ask, for example), and with all that cash from Microsoft, Soverture can afford to buy the business while it develops its way to parity with AdSense.
OK, I’m going to stop writing now, and ask you all: Is this crazy? I know there are tons of reasons why this would NOT happen, but it also makes a lot of sense, no?