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.
Whaaaaaaaaaaaaaa?
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?
Creative ideas are good. Don’t stop writing them. That said, one of the revolutions happening now is around Monetization. This begins with Search but ends with outdoor billboards and even radio.
Building and owning a killer monetization engine will pave the way for many new and mostly undiscovered business ideas over the next 20 years. I’m convinced that this is precisely why the three largest Internet companies are all focused on this very problem.
Future market capitalization and power will emanate from those very few companies that build powerful monetization systems.
I do not think that Yahoo, Google and MSN will be the only companies that figure this out. I have a somewhat contrarian view on this but I believe that 8-10 companies will figure this out — all with slightly different strengths and weaknesses, one possibly being a media company, but all showing great promise around innovation. They may begin with auction-based advertising but they might end with the development of social networks or vertical search engines.
Watch some of the small companies such as AdBrite, Quigo and Right Media.
John,
I’m an investor who has held a continuous position in Microsoft since its IPO in 1986 (and I felt like a genius until about March 2000 . . .). It’s been a looong last 7 years, and I get tired of the seemingly steady stream Microsoft misfires, so I am sympathetic to just about any radical idea for Microsoft performance improvement, and your search JV idea is intriguing.
However, at first blush, as a shareholder I would oppose it for two major reasons:
1) Every general wants to fight the last war again, and search is the last war as far as I’m concerned. Personalization is the upcoming war — that’s clearly where Google is heading across all its apps, not just search. And that means that’s not only where advertising is heading, but computing in general. Search will always be important, but recommendations and application level personalization will likely become even more important. I don’t see personalization getting ceded to a JV — it’s too strategic for both Microsoft and Yahoo (and I think Microsoft holds the stronger cards of the two in this area — but Google is clearly the player to beat)
2)Microsoft must absolutely defend the enterprise business, and they should be able to stomp Google search in the enterprise (and Yahoo is, of course, not a presence). Google search has significant disadvantages in the enterprise — there is little social information embedded among corporate documents, so PageRank adds nothing, and more importantly, I’ve seen first-hand that Google can’t deal with enterprise security environments, nor do they have a support structure. Big advantage to Microsoft. Hopefully they don’t blow it . . .
If MSN would open themselves up to frequent comments and suggestions about their search quality – it would be extremely helpful.
Looking at how much a high profile Google Blogger has accomplished in two years via a give and take blog, illustrates this points.
Savy readers (including: SearchEnginesWeb) have actually helped Google alter their algos and Webmaster policies and face and address their shortcomings – that could never be accomplished given the politics and egos of their work environment.
Yahoo, possibly also influenced by SearchEnginesWeb’s blog posts have set up suggestions.yahoo.com – to allow the public to make and vote on improvements – thus again, divorcing this from the office politics and egos.
Yahoo even announces and ASKS for critisms on their WEATHER UPDATES.
MSN just does NOT have the same interaction and humility. and if it were NOT the default homepage on the IE browser – what would their traffic REALLY be like.
If MSN did in fact partner with Yahoo – just by the mere fact of Yahoo being the default on IE browser, would send their traffic upwards. Perhaps, Microsoft could invest in next generation search hardware to further make Yahoo more competative.
But frankly, ASK and Yahoo and Microsoft should pool their resources together and continue to create THREE different algos so that each search engine has its own following and personality.
MSN Really has potential – but their developers know nothing about relevant SERPs – they just are not the experienced in fine tuning relevance.
If only SearchEnginesWeb could help them.
I don’t see the advantage of this over an outright purchase of Yahoo by MS. Due to cultural incompatibilities I don’t think MS should mess with Yahoo’s structure too much, rather gently tweak things as you describe here to leverage the control of the combined traffic for MS, Yahoo, plus associated sites.
Antitrust? I think Google would file against this merger, but would lose.
Pretty lame strategy.
I don’t think technology is the real issue here. Its more of perception and brand that Y!/MS should look at in their search fight against G.
The main problem Yahoo has is incompetent leadership that clings to the same tired Hollywood formula and the mistaken belief that content, not communications, is king. Microsoft has alienated most of the world’s technical talent through its long history of dirty tricks and given its flat stock price, bureaucratic creep and loss of focus, doesn’t offer a compelling work environment either.
Taking two also-rans and combining them in a joint venture is a prescription for disaster: JVs invariably experience decisional paralysis due to conflicting priorities of the two parties. While Google is also developing its own form of organizational creep, it is in nowhere near as terminal stage as MS or Yahoo.
I suspect the next big thing in this space is going to come completely out of the blue from China, India, South Korea, the former Eastern Bloc or any of the other countries that have overtaken the US in broadband penetration and foster innovation while our government coddles the AT&T-Verizon-Comcast oligopoly. The best thing MS or Yahoo could do would be to transfer a substantial fraction of their R&D and decision-making power abroad.
I bet both individual companies are too arrogant — thinking they individually can take on Google and/ or are bigger than Google already online — though temporary pacts like these might make sense. It would be like the classic non-attack contract of two countries while they’re trying to fight a bigger enemy (happened between Germany and Russia back in WWII). As soon as the battle with that enemy is won, the two countries can battle it out with each other again. I mean Google is trying to be a lot less arrogant with partnering these days, and get involved with e.g. Apple.
How would Microsoft explain to the City (and the web development community) that they have abandoned their inferior technology platform and languages in favour of Yahoo’s superior OSS-based software.
Panama’s functionality is significantly better… with greater usage.
Is this crazy?
Yes.
it also makes a lot of sense, no?
No.
The Internet is not big enough for two one-size-fits-all search engines. The *fundamental* question is: Do one-size-fits-all search engines have a future?
When is the last time someone here looked to see which books are on the Vatican’s index?
🙂 nmw
Talking about Search :
I think it’s now about fragmentation.
Google is solid as a rock but there’s lots of opportunities for smaller veritcal services
The question : is the market ready to have 2 giants ?
I don’t think so
Talking about Monetization :
There’s a real need for standardization here. Any mutual initiative would be welcome
Talking about the Market :
Search is already an old battle.
Google is after other targets (personalization, IM, local services) in its quest to “deliver all the information to everybody, for free”
MFST & Y! should focus on this future instead of runing after Google search supremacy
I think its a little harsh that some of the comments on this thread are implying that Yahoo! is an also-ran. I think its often lost/forgotten that Yahoo (through its acquisiiton of Overture, formally GoTo.com) was the real innovator with selling search related keywords.
Its also lost that Yahoo is also the dominant web property online. Their strengths are based around Email, Messaging and content.
Googles strengths are based around the indexing of content.
I think it’s a good idea, but focus more on the search marketing side; search results are search results, and Google’s are getting worse each day. If MS and Yahoo, and perhaps some smaller players like AOL, Amazon or Ask could create a single advertising network with a broad reach AND give a break to advertisers (taking a smaller percentage of the CTR) to draw them away from Google, they’ll have something. The focus should be cutting into GOOG’s search revenues by forcing prices down for advertisers, in my opinion.
Also: Yahoo and MSN make advertising for non-transaction based services all but impossible. Advertising for content-based sites is, in my opinion, an underserviced niche in the CPC world.
My humble belief is that the problem is not necessarily with size or even scope but in the hierarchical and territorial nightmare that’s been created by both behemoths.
After the long nuclear winter that would follow such an explosion, I think it might make sense… but who knows how long it would take for all the pieces, people and technologies to fall into the right places? Months? Years?
I think a joint venture would be best served if the two giants could put together a small group of highly intelligent and motivated individuals who have a lot of power to first create, then implement and lastly monetize new ideas in search, personalization and localization… the Bell Labs of search, if you will.
Create the coolest tools… the moolah will follow.
Regardless of whether it is a good idea or not, the timing is all wrong for Yahoo! Panama is just out the door and is looking very strong. There has been so much pressure and anticipation around the financial results expected from Panama, Yahoo would never throw YahooSearch in with LiveSearch until the benefits from Panama are clearly demonstrated. That’s a year or two window, and after a year or two search situation will be very very different.
You guys are all off course. Advertising doesn’t belong in search..it never did. All you have to do is think outside the box. Google has already morphed into an ad network. They know the money is in advertising and not search. MS and Yahoo are just copying an already dying process.
Question people. What still remains the only killer application on the Internet? What is still largely under utilized for this potential? Is there anyone out there that truly looks forward to opening their email and seeing something that they actually are looking forward to getting???Sayyyy rich content..sayyyy entertainment…sayy fill in the blank.
Let me ask you something. If I go out and capture huge well defined vertical markets through the organics in search and amass huge email subscriber lists for those verticals, don’t you think advertisers would give their eyeteeth to advertise to those subscribers? And once there were subscribers in well defined verticals do you think corporate America would ever need search advertising again???
Believe me when I say, the world is very much aware of the short comings of PPC. They are just anxiously awaiting the FIRST alternative to come along and offer something different.
yea, like http://www.something-different.info , http://www.something-different.co.uk , http://www.something-different.eu , ….
;D nmw
Interesting posit, John…and no, it’s a not crazy idea.
Could it work? Would it work? Possibly…
Frankly, though (full disclosure: I have a patent pending on this: #11/250,908), before I’d even think about pursuing such a path, I’d first try a whole new approach to matching us all up with the products and services we actually want to know about…by launching a parallel-to-search/paid search, “paid match” service; where Yahoo and/or MSN stored detailed (yet no names or addresses needed) personal profiles…
…and then let the advertisers select and bid directly on these demographic and psychographic traits and characteristics (keytraits); instead of (just) the words we all type into search boxes.
Such a system would present MERPs (match engine result pages) similar to what Bill Gross’ breakthrough (and very popular) GoTo system/service once did.
Words; unlike our actual traits and characteristics; make poor proxies for who each of us are and what each of really wants.
Keytraits just make so much more sense than keywords/Adwords…
…and since about half of all searches are for products and services…and 95%+ of their income is derived from paid search, such an ad platform should enable Microsoft and/or Yahoo to make a real dent in Google’s income…and, accordingly, “Big G’s” ability to (over)pay to lock up new “products”…and relationships.
neo: Just what you were looking for?
84%: Great tight post, John, and a lesson for the blogosphere in sequencing thinking. Our Coned version says it all. Each paragraph rates very high:
75%] 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.
88%] 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.
Whaaaaaaaaaaaaaa?
86%] 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.
85%] 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.
71%] 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….
100%] 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?
90%] 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.
78%] 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.
84%] 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.
100%] 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?
Oracep Technologies
84%-Great tight post, John, and a lesson in good writing for the blogosphere. The high Coned paragraph ratings say it all:
75%] 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.
88%] 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.
Whaaaaaaaaaaaaaa?
86%] 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.
85%] 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.
71%] 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….
100%] 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?
90%] 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.
78%] 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.
84%] 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.
100%] 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?
Oracep Technologies
http://www.oracep.com
Also should point out that Yahoo is tied into alot of ISPs and cable companies (like Rogers in canada), which would benefit them when they finally release their IPTV software later this year. They could use yahoo as another breakthrough to push the technology again.
Does it make any difference that Yahoo is a Unix shop and Microsoft, to say the least, isn’t?
Sounds like culture clashes waiting to happen.
I hate to join the skeptics, but as much sense as your proposal makes neither company shows any sign it is capable of managing this kind of collaboration. Even if factions willing to combine forces within Yahoo and MS managed to get a green light I suspect the result would be a mess. Panama may be an improvement, but Yahoo let the Overture technology get stale for years. MSN is terrible and in my opinion shows no promise. Odd as it may sound, I no longer believe MS or Yahoo will threaten Google. Instead we may see an upstart arise in the next few years in the form of a startup working on applications built around niches.
Sir… it seems far more reasonable for Yahoo and Google to partner against MSFT!
Phenomenal post and responses on your “Modest Proposal.”
I think it is Microsoft and Yahoo’s only real chance. The objections are just that, “objections” all of which can be overcome by determination, cash and most importantly, independence from the huge, bloated, pig-dog slow, angst-ridden, risk averse, over-matrixed and supremely ineffectual management and development structure at Microsoft and Yahoo. You nailed the way to avoid the culture clash. Give someone the resources and autonomy to achieve the goal without the baggage. Creates something new and better. That means “support it” don’t “manage” it.
Will they listen to you, John, or to anyone with anything other than Meager Proposals? Let’s not kid ourselves. The wax in their ears is so thick the sound of the space shuttle couldn’t penetrate it if they were standing six feet away from launch.
Dare you to do it Steveb. I double-dog dare you. I triple, double-dog dare you. Yelling, screaming, pounding your fist, intimidating your staff and throwing chairs will not make Google go away. Fund and support something daring and then get the hell out of its way.
My humble belief is that the problem is not necessarily with size or even scope but in the hierarchical and territorial nightmare that’s been created by both behemoths.
I do not think that it happens. For Yahoo it can also the positive party, but whether it will go to harm MSN?
And as it till now has not occured, Microsoft probably have thought again.
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?
yav eklesene a.q thaks youu işte 🙂