Yahoo! (YHOO) and Microsoft (MSFT) are certainly pulling out all the stops to put the best face on the merger of their search activities. Yahoo! CEO Carol Bartz gushes that “everything’s just going to get a whole lot better” and that “this deal will make the difference between a great Yahoo! search experience and an awesome one.” Maybe that’s to make up for the promised boatloads of cash Yahoo! is not getting.
She also features in a dull video extolling the virtues of the deal. Microsoft’ CEO Steve Ballmer’s version is slightly more interesting thanks to the live background. Both appear at a special website set up to tout the venture www.choicevalueinnovation.com, thought it’s hard to see how the deal advances any of these goals.
A quick scan of Alacra StreetPulse finds that most analysts greeted the deal with a yawn:
Mark May of Needham & Co says the deal is a clear negative for Yahoo because: 1) There’s no upfront payment;. 2) The minimum guarantee is only for 18 month of the 120 month deal;. 3) The deal requires regulatory approval and management expects closing in early 2010;. 4) Management doesn’t expect to see the full benefits of the deal until 24 month after regulatory approval, which could mean not until 2012;.
The deal, which lets the two companies share revenue from ads sold next to results generated by Microsoft’s Bing search engine, may disappoint some investors because it doesn’t include an immediate payment to Yahoo - Jeff Lindsay , Sanford C. Bernstein & Co.
BusinessInsider’s Henry Blodgett sees trouble ahead for Yahoo!:
- The deal is significantly worse than expected for Yahoo, as the company will get no money upfront.
- The deal is positive for Microsoft, but largely because Microsoft was nowhere in search without it. Saving the upfront payment is also a help.
- Ironically, the deal will likely be positive for Google, which will now likely benefit from months of purgatory as Microsoft and Yahoo work to clear regulatory scrutiny and then go through the massive challenge of trying to integrate their sales forces and technology. Google itself will also now be able to argue persuasively that there is a big, viable (if discombobulated) competitor in the market.
Conceptually, the idea of Microsoft and Yahoo combining forces is smart. Neither alone has enough share of the search market to be a “must buy,” and search relevance and pricing improves with scale. Both companies would likely just continue to lose share ad infinitum without a deal, so they have little to lose by working together. And Yahoo will gain some cost savings, at least for a while.
That said, we think the structure of the deal could end up being a disaster.
Rebecca Jennings, Forrester Research’s principal London analyst is more positive: “This deal should allow Yahoo! to give up its drive to to beat Google, and concentrate on the elements it does do better , display media and social media , devolving the competition and the significant investment involved off to Microsoft.”
Likewise, The Economist: “The combination, which was announced on Wednesday July 29th, is not as far-reaching as originally envisaged. But it is likely to create a serious rival to Google, the online giant that dominates both of these markets.”
(Logos courtesy The Economist)