LiveSide - News blog : MSFT-YHOO

Yahoo! powered by Bing, but not much more?

Kip Kniskern — Wed, 29 Jul 2009 16:29:26 GMT

As widely expected, Microsoft and Yahoo! announced a deal (very early) this morning, a 10 year agreement to have Bing power Yahoo! searches, with Yahoo! controlling ad sales. Last night we asked a few questions, and by digging down a bit we found some answers this morning. Like most of the tech writers, Wall Street is favoring Microsoft in this deal (at this writing nearly halfway into today’s stock market session, MSFT is up a bit but YHOO is down around 10% – you can click on the ticker symbols in our Sane Bull stock market widget for more information). However, while the deal will increase market share in terms of what the advertiser sees, at first look this deal does little to promote “the decision engine”.

According to remarks made by Yahoo! CEO Carol Bartz in an early morning conference call, and also wording in the Microsoft press release, Yahoo! search will be “powered by Bing”, and that labeling will only appear on search results pages. From the press release:

Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.

…and then Bartz’s remarks, as reported by Danny Sullivan at Search Engine Land:

Search will still be prominently Yahoo branded. Bottom of results will be “powered by Bing.”

So while Bing will power Yahoo! search, and offer one seamless set of (larger) numbers for advertisers to spend on, this deal doesn’t do much, apparently, to further the Bing brand. It won’t necessarily promote the “decision engine” (which is largely if not completely about UI), or promote Bing’s heavy focus on the four verticals: shopping, trip planning, health, and local. Of course the details about how Bing will appear on Yahoo! are (very) murky at this point. Bing has had good reaction to its UI changes and features like the Price Predictor, and it’s unclear why Yahoo! would want to replace that with something that didn’t work as well, so we may see Yahoo! search become quite a bit more Bing-like in the next months. However the wording of the announcement makes it clear that Bing will power Yahoo! search results, but not replace them per se, and that it won’t necessarily be the Bing experience within Yahoo!.

Ballmer and Bartz did talk about possibilities surrounding mobile search, which while not exclusive, is part of the deal (again, via SEL):

Bartz: We have option of using MSFT technology for the mobile experience. It’s not exclusive as on the PC. If somewhere down the road we want to switch we could.We’re very interested in doubling down on the mobile experience. Having an integrated search is important.

Ballmer: We don’t know all the scenarios involving mobile search. This gives Yahoo flexibility on the mobile side. It won’t make sense to do a whole separate crawl of the internet for mobile search.

Bartz: What we’re very interested in doubling down on the mobile experience to integrate search as part of that, to integrate our content.

In addition, some details did emerge this morning on the Yahoo! search technology. Microsoft “will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms”. So Microsoft will have access to Yahoo! search technologies, with Yahoo! holding title to them. Bartz indicated that some Yahoo! search technicians would probably move to Microsoft, some would move elsewhere in the company, and there would be “some redundancies”, although not in the immediate future.

Our first take on MSFT-YHOO: Less than meets the eye?

Kip Kniskern — Wed, 29 Jul 2009 06:03:59 GMT

A search deal between Microsoft and Yahoo! hasn’t even been announced yet, and yet tidbits of information are being analyzed, scrutinized, and dissected all across the web. Marshall Kirkpatrick at Read/Write Web sees bad news for search innovation of the kind Yahoo! has been pursuing, and Henry Blodget at Silicon Alley Insider is calling the deal “awful”. Kara Swisher compares it to what Yahoo! could have got last year when Microsoft first proposed a search only deal (after Yahoo! nixed an all out acquisition by Microsoft), and we’re all anxiously awaiting more details.

In the meantime, we’ve been poring over what little “information” we could find on the deal. First, a few questions that we haven’t seen addressed:

What happens to Yahoo!’s existing search technology? In last year’s offer, Microsoft offered $1 billion for the existing search technology, which Kara Swisher categorized as a “low bid”, and “a kind of a direct insult to Yahoo techies”. So if Microsoft isn’t offering cash up front this time, what happens to the search technology that is powering 20% of US search market share? Certainly Yahoo! isn’t giving it away, after turning down an “insulting” billion dollars.
How much of Bing will make it on to Yahoo!? Will it be the full experience? Maps, mobile, health, etc? Or will Bing just replace the search bar on Yahoo! properties? Of course the search bar represents the lion’s share of traffic, but still, how far will the deal go?
How closely will Microsoft and Yahoo! work together moving forward? Henry Blodget foresees a nightmare scenario where Yahoo! salespeople yell at Microsoft technicians, forcing them to request transfers. A little far-fetched, but there will have to be some crossing of lines. How far will it go? Who will be in charge?

Blodget paints quite a bleak picture of the deal. We don’t see it quite that way, but what strikes us initially is this seems to be a “foot in the door” move rather than a blockbuster deal. Initially, ad sales will continue on as they exist now. According to the Ad Age report:

Yahoo is likely to take on exclusive representation of Bing inventory to eliminate channel conflict and complexity for advertisers, but not before both sides unwind the thousands of advertiser relationships and proprietary systems through which many large advertisers buy search ads.

In the next sentence, Michael Learmonth from Ad Age says that the two participants “have no reason to rush” a move to have Yahoo! control ad sales across all of Bing. This smacks of “let’s get the deal done and we’ll figure out the sales later”. For right now, the “incredibly complex” system of advertisers and relationships will remain just that, and perhaps become even more so.

So what we seem to have is a deal that doesn’t appear to hand over control of Yahoo!’s search technology, may not bring the full Bing experience to Yahoo! (earlier this week there was even talk that the Bing brand wouldn’t make it on to Yahoo!, with Microsoft only providing the technology), won’t unravel sales channels for quite some time to come, and will leave a large chunk of the revenue gained by getting Bing on Yahoo! with Yahoo!. A far cry from Microsoft’s attempt to acquire the whole company, that’s for sure.

Still, it is (or seems to be) a foot in the door. While Microsoft may not gain much revenue from the deal, initially, search share numbers are going to be very fun to watch again, and the perception of giving Google a run for its money may be worth it to Microsoft. Untangling the complexities of ad buys somewhere other than Google needs to be done in order to compete, even if it takes a while. And if this deal makes Yahoo! stronger, well a stronger Yahoo! powering more and more Bing eyeballs can only be good for Microsoft.

Details filter out on Microsoft-Yahoo! search deal to be announced Wednesday

Kip Kniskern — Wed, 29 Jul 2009 01:11:00 GMT

Multiple reports are out from AdAge, The Wall Street Journal, and Kara Swisher at All Things Digital that Microsoft and Yahoo! are set to announce a search deal as early as tomorrow, Wednesday. From AdAge:

Through the pact, Bing will become the default search engine on Yahoo, creating a search player with close to 30% market share of search queries, compared with Google's 65%, according to ComScore data. One of the most interesting wrinkles involves who takes ownership of search sales: Yahoo is likely to take on exclusive representation of Bing inventory to eliminate channel conflict and complexity for advertisers, but not before both sides unwind the thousands of advertiser relationships and proprietary systems through which many large advertisers buy search ads. Microsoft's AdCenter is expected to be the sales-technology platform.

We've been hearing all kinds of rumors about details of the deal over the past week, but if this latest representation holds true, it seems to make the most sense of anything we've heard so far. Microsoft will not make a large (read: billion dollar) upfront payment to Yahoo!, Bing will appear as the default search engine on Yahoo!, and Microsoft adCenter will supplant Yahoo! Panama as the sales technology platform but the complexities of who will sell what, and where, will be largely left unchanged, at least for the moment.

Of course until we hear official word (and that could be coming at any time), details of the deal are still a little murky, such as when Bing will begin surfacing on Yahoo!, what the reaction of the US Justice Department will be if any (and what Google will do to counter), and what the details of the dollar transactions will be, but it sounds like, after nearly three years of rumors loud and soft, that Microsoft will finally acquire the US search share boost it's been looking for.

More soon, of course.

MSFT-YHOO search deal “likely to be announced this week”: Ad Age

Kip Kniskern — Mon, 27 Jul 2009 05:26:34 GMT

Talks between Microsoft and Yahoo! about deal that would have Microsoft’s Bing providing search technology for Yahoo! properties continue, according to an article in today’s Advertising Age:

Yahoo's request for an upfront payment (it is said to have asked for several hundred million), in addition to revenue guarantees that would amount to billions over the course of the deal, caused a breakdown last week in the on-again-off-again talks. But they were revived late on Thursday, according to executives with knowledge of the situation.

Execs in Redmond never conceived of the deal as an upfront purchase of Yahoo's search traffic but as a deal in which Yahoo would be compensated from a share of revenue from the sale of search ads. Yahoo would be allowed to sell search ads on Bing.com as well as its own site, giving it more search inventory to sell and making it a bigger player in the search sales front. It would also immediately be able to save millions by not having to maintain its own search infrastructure.

Complex negotiations over revenue sharing from searches and ads clicked on Yahoo! sites, and branding issues regarding whether or not the Bing brand would be used on Yahoo! have been sticking points as well, according to the article:

Some think it's possible that Microsoft will give up potential Bing branding if Yahoo will give up demands for an upfront payment and get the deal done. The risk in that approach, from Microsoft's point of view, is that Yahoo would still have a strong display offering coupled with a bigger, better search sales offering, potentially hampering Microsoft's own sales efforts.

Ad Age notes that a number of key executives from Yahoo! are now working at Microsoft. Along with Online Services President Qi Lu, who came to Microsoft last January, a number of search and data center executives have left Yahoo! to join Microsoft, including Sean Suchter, Scott Moore, Larry Heck, and Kevin Timmons.

While Bing has been generating some good buzz (and it’ s somewhat surprising that Microsoft would consider running search on Yahoo! under anything but the Bing brand), gaining search share is another matter, and Microsoft would jump from something less than 10% of US search share to around 30% with a Yahoo! deal. Yahoo! would stand to gain as well, by shedding expensive and technically challenging search technology, joining with Microsoft on ad sales (and again, it’s still very unclear what would happen to either Yahoo! Panama ad platform, or to Microsoft’s adCenter), and concentrating on its core businesses.

Still we’ve been hearing about impending search deals for well over a year, so it’s hard to get too excited, but it looks like MSFT-YHOO might finally be seeing light at the end of the tunnel.

Whee!, more MSFT-YHOO rumors!

Kip Kniskern — Wed, 07 Jan 2009 18:14:34 GMT

In a post one commenter characterized as “Some guys are talking about pitching Microsoft on a crazy scheme”, Michael Arrington at TechCrunch says he’s hearing of a complicated deal, still early on, that would have a group of investors buy Yahoo!, heavily financed by Microsoft, who would then get the search and search marketing business from Yahoo!. From Arrington’s post:

Under the terms of the proposed deal, the investment group would make a takeover bid for Yahoo at a relatively low premium of around 20% to its current price of around $13 per share, valuing the company at just over $20 billion.

A complicated financial structure would be put in place to finance the deal, but the bulk of the cash for the transaction would come from Microsoft as debt.

…

Simultaneous to the transaction Yahoo’s search and search marketing business would be sold to Microsoft under terms similar to what Microsoft proposed in June 2008 …

While the deal would give Microsoft control of Yahoo!’s search properties without having to own the rest of the company, what Arrington characterizes as “everything the Redmond giant has asked for”, without knowing who the principals are, and what Microsoft thinks of the idea, it’s hard to tell whether this is just a “crazy idea” or something more. However Microsoft is known to still be interested in the Yahoo! search business, and almost everyone in the industry (except probably Google) wants it to happen, too. Hopefully a deal gets done sooner than later, so we can report some real news instead of speculation about guys pitching crazy schemes.

Search roundup - More Kumo domains, Yahoo deal still makes sense for mobile growth

Chris — Mon, 01 Dec 2008 09:32:00 GMT

While talk of the weekend may have been around whether or not a $20bn Microsoft-Yahoo search deal is back on the cards, there were a few other bits and pieces that caught my eye.

Firstly was Mary Jo Foley's post about the continued push to rebrand Live Search as Kumo. Mary-Jo has jumped on some of the vertical search domains now registered by CSC Corporate Domains, including Kumosearch.com and Kumotravel.com. While the continued land grab for kumo domains is a strong suggestion of things to come, the cost to Microsoft of backing out before announcing is still very low.

Secondly was the article I read today about Yahoo further expanding its mobile partnerships. While these corporate strategic alliances/joint ventures are commonplace, one statistic caught my eye. Yahoo is the default search engine for 850million mobile subscribers (emphasis mine). With mobile search and advertising key sectors still not dominated by Google, a Microsoft acquisition of these Yahoo users could be a big contribution to future search growth. (Yes I know subscribers doesn't equal users).

Any other search related stories caught your eye? Feel free to drop them in the comments below.

Is it On again? Times of London reporting $20B MSFT-YHOO deal

Kip Kniskern — Sun, 30 Nov 2008 05:51:00 GMT

A piece in the online version of Sunday’s Times of London is reporting that Microsoft and Yahoo are in talks again, in a complex deal that could see Microsoft acquiring Yahoo’s search business for $20 billion, after putting up $5 billion to fund a new management team headed reportedly by ex AOL chairman Jonathon Miller and Ross Levinsohn, a former Fox Interactive president. According to the Times:

The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services

In a widely reported attempted takeover starting last February 1, Microsoft tried to buy Yahoo, at first for what worked out to be $31 billion, and then after a series of parries and gaffes by both sides, Microsoft reportedly upped the offer to some $33 billion. When Yahoo did not immediately accept the offer, Microsoft walked away from the deal in May. Since that time, both because of negative investor confidence in Yahoo, and also a severe downturn in the economy, Yahoo’s share price has dropped considerably, from a high of near $30, to a low of well under $10 recently.

Yang announced last week that he would be stepping down from the CEO position at Yahoo, which along with a major stock buy coming from Yahoo investor and board member Carl Icahn has upped Yahoo’s price in the past few days, closing at $11.51 on Friday.

Microsoft had seen Yahoo’s search business as a way to help in its battle with search leader Google, but Steve Ballmer, Microsoft CEO, has said repeatedly in recent months that he was not interested in a new deal to acquire the company. This latest reported effort would help to prop up both Yahoo’s bottom line and its management, while getting Microsoft what it wanted all along, which was search.

via Seattle PI Tech Report

UPDATE: Kara Swisher at The Wall Street Journal's All Things Digital is calling this "total fiction", pointing out that Yahoo's entire market cap is $16b. Well it's nice to get a little MSFT-YHOO news on a weekend again, anyway.

Carl Icahn spins a different story on latest MSFT-YHOO deal

Kip Kniskern — Tue, 15 Jul 2008 00:56:44 GMT

On Saturday we got the Yahoo! spin on things, and now this morning Carl Icahn fires back, in an open letter to Yahoo! shareholders. I mentioned the heavy amount of spin in the Yahoo! press release, and Icahn noticed, too:

Over the years I have attempted to make changes at many companies but I have yet to see a company distort, omit and twist events and facts in the manner that Yahoo! has done in their press release issued Saturday night, July 12th.

Icahn goes on to lay out his version of the events; that Yahoo! could have taken more than 24 hours to make a decision “if they would be willing to postpone the annual meeting for a short period”, that a total replacement of the current board wasn’t a demand - “Yahoo! neglected to mention we were willing to discuss keeping a number of the current board members and Jerry Yang as Chief Yahoo!”; and that “Yahoo tells you the Microsoft proposal precludes the potential sale of all Yahoo! however, they neglect to tell you that that train has left the station in that Microsoft is no longer willing to buy all of Yahoo! with the current board overseeing the company”.

Yahoo! seemed to be more interested in the fate of the Board of Directors than in the benefits of the deal, which irritated both Icahn and Microsoft CEO Steve Ballmer:

I spoke to Goldman Sachs and Roy Bostock on Thursday concerning the breakthrough with Microsoft. A call to discuss the details of the transaction was then set up among Microsoft, Yahoo! and me on Friday afternoon, July 11th. However to my surprise and consternation, on the Friday call Yahoo!, instead of being interested in the Microsoft offer, seemed to me to be focused on who would be running Yahoo!. Finally, Steve Ballmer suggested that we not spend the rest of Friday afternoon on corporate governance. "First tell us if you like the deal," he said.

Icahn includes in his letter some specific information about the terms of the deal, which included a 5 year, $2.3bil per year guarantee of search revenue for searches coming from Yahoo! pages. You can read the full Icahn press release (in PDF form), which is posted on Icahn’s blog.

Yahoo! rejects latest doozy from Microsoft/Carl Icahn

Kip Kniskern — Sun, 13 Jul 2008 12:24:55 GMT

Microsoft and Carl Icahn proposed a new offer to Yahoo! on Friday, and according to the Yahoo! press release (if you can believe Yahoo! press releases, and a college level course on “public relations spin” could be taught using only Yahoo! press releases), Yahoo! was given less than 24 hours to accept a “take it or leave it” offer for their search business. They left it. At the same time, Yahoo! fairly begs Microsoft to buy the whole company (for “at least $33”), something they seemingly avoided at all costs just a few months ago. According to the press release:

Yahoo!'s Board points out that a transaction to acquire the whole company would be much more straightforward and involve far less risk than the new proposal or any similar alternative. The Board believes a whole company transaction could be negotiated and executed prior to August 1st. In rejecting the Microsoft/Icahn proposal, Yahoo! not only repeated its offer to sell the entire Company to Microsoft for at least $33 per share, but also offered to negotiate an improved search only transaction. Microsoft rejected both offers.

Yahoo! ridicules not only Microsoft but Icahn in the press release, saying

“This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!'s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders”

and

“It is ludicrous to think that our Board could accept such a proposal. While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders”.

At the same time, Yahoo! admits that “(w)hile the Board acknowledges that the current proposal contains a number of improvements over Microsoft's earlier proposal”, the press release goes on to poke holes in the latest offer, and concludes by welcoming what is really shaping up to be a donnybrook on Aug. 1:

"Microsoft and Mr. Icahn are trying to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo! stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote.”

Clearly, however, Microsoft has found a handy blunt instrument in Mr. Icahn with which to bludgeon the current board. This latest move, if the terms were as “ludicrous” as Yahoo! makes them out to be, certainly isn’t aimed at offering up a peaceful solution. Yahoo! rejected offers that were far better than this before Microsoft pulled out of their proposed deal on May 3rd. Yahoo! shareholders are going to want some compensation on or by August 1, as Yahoo! shares had touched $20 before this latest round of Microsoft intervention began last week. It is almost as ludicrous as Microsoft’s latest offer to believe that Yahoo! will walk away from the shareholders meeting on August 1st unchanged and/or unscathed. Yet Microsoft’s heavy handed tactics are wildly unpopular, and the “acquisition by bludgeon” path they seem to have embarked on may very well backfire.

In any event, we’re dragged into another weekend of this, the acquisition that wouldn’t die. Yogi Berra said “it ain’t over til it’s over”, but if it ain’t over by August 1st, we all may need some bludgeoning.

MSFT-YHOO, it just continues*

Kip Kniskern — Wed, 02 Jul 2008 13:07:00 GMT

Like the soap opera it has become, the workings behind a deal between Microsoft and Yahoo! just don’t ever seem to end. This week we’ve seen a Yahoo! PowerPoint presentation that tries to place all the blame on the failed deal on Microsoft, Microsoft’s purchase agreement with Powerset, the apparent launch of a formal US Justice Department investigation into the Google-Yahoo! search deal, and now a new Wall Street Journal article reporting new talks between Microsoft and Yahoo!, only now possibly including either Time Warner, Inc (AOL), or News Corp. (MySpace).

According to the Washington Post, the ad deal that Yahoo! struck with Google after Microsoft’s Steve Ballmer backed out (which Yahoo! desperately tried to talk them out of, it turns out – more below) is under formal scrutiny by the Justice Department:

Investigators are planning to demand documents not only from Google and Yahoo, but also from other large companies in the Internet and media industries, said the sources, who spoke on condition of anonymity because the investigation is ongoing.

Google and Yahoo officials have said since the deal's announcement that they would delay its implementation for a voluntary Justice Department review. But a formal investigation signals that the department may have found some cause for concern.
…
But lawyers familiar with similar investigations said that the kind of legal requests being issued by the Justice Department in this case -- "civil investigative demands" -- are not used for routine matters.

"They don't do it without having identified significant issues," said M.J. Moltenbrey, a Freshfields Bruckhaus Deringer lawyer who was director of civil non-merger enforcement in the Justice Department's antitrust division in the 1990s. "It involves approval at higher levels within the antitrust division."

And then tonight, the Wall Street Journal reports that “Microsoft Corp., positioning itself for a new run for Yahoo Inc.’s search business, has approached other media companies in recent days about joining in a deal that would effectively lead to Yahoo’s breakup…”.

Microsoft has held discussions with Time Warner Inc. and News Corp., among others, say people involved in the talks. In the past, Microsoft has floated an arrangement under which it would acquire Yahoo's search business and another partner, such as News Corp.'s MySpace or Time Warner's AOL, would combine forces with what remained of Yahoo.

The Journal article goes on to provide a detailed timeline of Yahoo!s attempts to get Microsoft back to the table after Ballmer pulled out, up to and including the color of Ballmer’s shirt (I don’t want the WSJ to go all AP on me - it’s a very good read, but behind a paid firewall).

With Yahoo! stock about to dip below $20 per share, and the Board of Directors elections coming up in a month, things aren’t looking good for Yahoo! right now, even with the Google deal. Will Microsoft be able to put together a deal with either AOL or MySpace in play? Will the Justice Department begin to chip away at the seemingly impregnable Google? Will Powerset, cashback, an HP deal, and a new Search Technology Center be enough to begin to turn the tide?

As The World Turns, indeed.

+++
* “Swung on and lined down the left field line for a base hit…Here comes Joey… Here comes Junior to third base… THERE GONNA WAVE HIM IN!! THE THROW TO THE PLATE WILL BEEEEEEE LATE!! THE MARINERS ARE GOING TO PLAY FOR THE AMERICAN LEAGUE CHAMPIONSIP!! I DON’T BELIEVE IT! IT JUST CONTINUES! MY, OH MY!!”

Back up and running

Kip Kniskern — Wed, 25 Jun 2008 08:41:10 GMT

Apologies for the downtime, we’ve been down the last 17 hours or so, due to problems at our webhost. Pretty frustrating, really, and we’re exploring our options (know a good web host? – leave a comment). Glad to be back up, though. Apparently the rumor mill was swirling in our absence, although other than propping up Yahoo!s stock, there seems to be little news of substance, at least not yet.

Sorry, too, to have missed a nice mention by Todd Bishop of the Seattle PI, to whom Bill Gates confirmed Windows Movie Maker “as a part of Windows Live” and linked our reporting of that news here back on March 27. Watching some of the retrospectives we realized how much we’re going to miss Bill Gates, but at the same time can’t wait to see where Ray Ozzie takes Microsoft, and Windows Live.

Hopefully, we’ll remain online (with what we pay for our server we should never go down, but hey), but if not, there’s always Twitter:

Microsoft withdraws Yahoo! offer: full text of Ballmer letter to Yang

Kip Kniskern — Sun, 04 May 2008 07:10:46 GMT

Microsoft has withdrawn its offer to acquire Yahoo!, according to a press released issued at 5pm PDT today.

Here is the full text of the letter from Steve Ballmer to Jerry Yang:

May 3, 2008

Mr. Jerry Yang
CEO and Chief Yahoo
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

•

First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.

•

Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

•

In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

•

This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

•

It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

Microsoft and Yahoo! sites compared: a quick look at the numbers

Kip Kniskern — Tue, 08 Apr 2008 12:28:44 GMT

With all the talk about Microsoft's attempted acquisition of Yahoo!, and with a little help from Nielsen Online, we thought we'd make a quick comparison of some of the main features of both services. I asked Nielsen if they could supply audience numbers to a sampling of sites from both, and then played a bit with Excel to produce this quick look:

source: Nielsen Online "Unique audience includes anyone who visited the site at least once during the month, and anyone who visited the site more than once was not counted again."

Accurate audience measurement numbers are hard to come by, and we've noted some differences in the market rating services before (and more on that coming up), but at least this gives an apples to apples comparison of audience numbers (and note that this isn't market share, but unique audience).

The purpose of this little exercise was not to show trends, or make comparisons to other sites/properties, but just to get a bit of a handle on where the two companies sit in relation to each other, and what a potential joining of forces might mean.

For clarity, here's the February raw numbers, supplied by Nielsen:

Site	Feb-08
MSN Homepage	46,093,000
Yahoo! Homepage	65,832,000
MSN/Windows Live Messenger	23,862,000
Yahoo! Messenger	21,763,000
MSN/Windows Live Search	42,082,000
Yahoo! Search	55,312,000
MSNBC Digital Network	34,013,000
Yahoo! News	35,274,000
Windows Live Hotmail	39,616,000
Yahoo! Mail	58,657,000

Yahoo! responds to Ballmer, believes offer is too low

Kip Kniskern — Mon, 07 Apr 2008 21:45:05 GMT

In response to a letter to the Yahoo! Board of Directors on Saturday, Jerry Yang and the Board responded this morning with a letter of their own, again rejecting the Microsoft offer as too low, although stating publicly for the first time that Yahoo! is not opposed to a deal. Some key parts of the letter:

Our Board carefully considered your unsolicited proposal, unanimously concluded that it was not in the best interests of Yahoo! and our stockholders, and rejected it publicly on February 11, 2008. Our Board cited Yahoo!'s global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as its substantial unconsolidated investments, as factors in its decision.

At the same time, we have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders. Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo!, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders.

Since disclosing our Board's position with respect to your proposal, we have presented our three-year financial and strategic plan to our stockholders, which supports our Board's determination that your unsolicited proposal substantially undervalues Yahoo!. Those meetings with our stockholders have also provided us an opportunity to hear their views.

While the word on the street was that the 3 year plan wasn't convincing, and even perhaps wildly optimistic, Yahoo! is taking the position even more firmly now that it is doing just fine and Microsoft needs to up their offer. Yahoo! is set to release their first quarter earnings statement on April 22, but they seem to be betting that those numbers will be postive:

Our Board's view of your proposal has not changed. We continue to believe that your proposal is not in the best interests of Yahoo! and our stockholders. Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo!. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal.

In contrast to your assertions about the effect of general economic conditions on our business, Yahoo!'s business forecasts are consistent with what we outlined in our last earnings call. As you know, we recently reaffirmed our Q1 and full year guidance, which is a testament to our ability to perform in line with our expectations despite the current economic environment. In addition, our three-year financial and strategic plan which we have made public demonstrates significant potential upside not previously communicated to the financial markets. This plan has received positive feedback from our stockholders, further strengthening the view that Yahoo! is worth well more as a standalone company than the value offered in your proposal, and would be even more valuable to Microsoft. Your own statements have made clear the strategic importance of Yahoo!'s substantial assets and capabilities to Microsoft.

In this section it's interesting to note both the new information that Steve Ballmer has been personally involved in talks with Yahoo!, and that there seems to be a bit of a jab at him for not negotiating via the talks and not the media:

We regret to say that your letter mischaracterizes the nature of our discussions with you. We have had constructive conversations together regarding a variety of topics, including integration and regulatory issues. Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given we have already rejected your initial proposal, nominally $31 per share at the time, for substantially undervaluing Yahoo! and your suggestions in your letter and the media that you are considering lowering the value of your proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit.

As to antitrust, we have discussed with you our concerns. Any transaction between us would result in a thorough regulatory review in multiple jurisdictions. As a follow up to a recent meeting among our respective legal advisors we had on this topic, and at your request, we provided to you on March 28 a list of additional information we would need to further our understanding of the regulatory issues associated with any transaction. To date, you have still not provided any of the requested information.

Yahoo! concludes by stating that it is not opposed to a deal, just not the current deal on the table:

In conclusion, please allow us to restate our position, so there can be no confusion. We are open to all alternatives that maximize stockholder value. To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing. Lastly, we are steadfast in our commitment to choosing a path that maximizes stockholder value and we will not allow you or anyone else to acquire the company for anything less than its full value.

The ball is back in Ballmer's court....

The Gig's up: MSFT to YHOO: 3 weeks or we come and get you

Kip Kniskern — Sun, 06 Apr 2008 02:33:40 GMT

Where there's smoke, there's bound to be fire, and yesterday's leaked warning shots across Jerry Yang's bow resulted in a letter today from Steve Ballmer to Yahoo!, saying in effect: take the offer we have on the table, or we come and get you via proxy in three weeks for a much lower price. From the Microsoft press release:

Given these developments, we believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies that will deliver superior value to our respective shareholders, creating a more efficient and competitive company that will provide greater value and service to our customers. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board. The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal.

Ballmer lays out some pretty compelling reasons for Yahoo! to act quickly, and it really looks like their backs are up against the wall. Interesting that the letter comes on Saturday, giving Yahoo! a little time before all hell breaks loose in the markets on Monday. Man this is getting fun :).