Microsoft: We don't have to buy Yahoo outright; Is it joint venture time?

Microsoft: We don't have to buy Yahoo outright; Is it joint venture time?

Summary: Updated with Yahoo response, more on potential search deal: Microsoft on Sunday issued a statement that opens the door to a partnership with Yahoo, but not an acquisition.Now Microsoft is talking some sense (Techmeme).

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Updated with Yahoo response, more on potential search deal: Microsoft on Sunday issued a statement that opens the door to a partnership with Yahoo, but not an acquisition.

Now Microsoft is talking some sense (Techmeme).

The 20-second version of this Microhoo drama so far. Microsoft bids for Yahoo. Yahoo tells Microsoft to get lost. They talk. Microsoft walks. Yahoo dangles in the wind. Billionaire Carl Icahn launches a proxy war with an alternate slate.

All that back and forth and some sort of joint venture or side deal may have been the solution the entire time. That's my read on the following Microsoft missive:

"In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo! Microsoft is not proposing to make a new bid to acquire all of Yahoo! at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties. There of course can be no assurance that any transaction will result from these discussions."

Key excerpt: Microsoft is considering and has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!

How would this work? Microsoft could give Yahoo its MSN properties to run for a share of the company. Or it's a joint venture. Or Microsoft buys Yahoo's search business and throws in some sort of exclusive two- to three-year technology deal. Or it's any combination of those options that would allow Microsoft to focus on its core businesses while reaping some of the online advertising bounty.

Will it happen? It's possible. Yahoo has shareholder issues. Microsoft's time could be better spent elsewhere. Everyone would be happy. Except for Icahn.

Update: News.com has an email from Kevin Johnson outlining Microsoft's new online strategy, revealed in an Ina Fried report May 7. From the letter:

Four pillars have formed the basis of our strategy: 1. Consolidate ad platform and win in display 2. Innovate and disrupt in search 3. Deliver end-to-end user experiences across PC, phone, and web 4. Reinvent portal and social media experiences We have many options that support acceleration of our strategy. As announced earlier today, we are also considering new alternatives for a transaction with Yahoo! which do not involve a full acquisition. At this time, we have not made a new bid to acquire all of Yahoo!, but we reserve the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo!, shareholders of Yahoo! or Microsoft, or with other third parties.

Regardless of the outcome of any new discussions, it is important that we continue to move forward to strengthen our online services business. The fact is that we are not where we want to be in this business yet and we've been in this position longer than we'd all like. To that end, we will be accelerating elements of our core strategy, and breaking ground in new areas.

Meanwhile, the New York Times is reporting that Microsoft's proposal to Yahoo revolves around search advertising and joining forces to better compete with Google. In other words, this overture may be Microsoft's Hail Mary pass to prevent a Yahoo-Google search deal. The search sale possibility was reported first by Kara Swisher. The big question is whether Yahoo would sell its search business or just team up with Microsoft. You could argue that it would make sense for Yahoo to essentially sell it's search market share to Microsoft. Yahoo could then focus on what it does best. The decision matrix is also relatively simple. Will selling Yahoo's search business to Microsoft net more dollars than outsourcing search to Google? Weighing those options may indicate that it is better to sell the search business to Microsoft.

To wit:

  • If Yahoo sold its search efforts to Microsoft it would get some return on its previous investment.
  • If Yahoo outsources to Google Yahoo's search investment will just wither.
  • In either case, Yahoo could use this Microsoft possibility as a way to get better terms from Google--assuming those outsourcing talks are still on.

Update 2: Yahoo has responded. In a statement the company said:

"Yahoo! has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo! at this time. Yahoo! and its Board of Directors continue to consider a number of value maximizing strategic alternatives for Yahoo!, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo!'s Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value."

Topics: Enterprise Software, Banking, Microsoft, Social Enterprise

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17 comments
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  • Great Planning

    My guess is that Microsoft is going buy Yahoo Search for 20 to 25 billion. That will take away more than half of Yahoo valuation instantly. MSFT then going to merge MSN into Yahoo for an 40 percent stake. An year or two from now Microsoft going to purchase the rest of YahooMSN assuming how the YahooMSN business gets valuated at the time. Yahoo is not worth that much without its search business and Microsoft knows this. If you look at that Yahoo and MSN is neck to neck in traffic and content. So my equation of the content and vistor traffic only businesses of these properties equal: Yahoo 20 billion and MSN 15 billion.
    1g2j
    • Yahoo wins BIG TIME

      They'll be able to play MS against Google to see who comes up with the best proposition.

      The question now is will the regulators show any teeth. What is fundamentally important is to prevent Microsoft from continuing to use its illegal desktop monopoly (forced pre-installation of not fit for purpose products) to drive its anti-competitive behaviour into the next generation of the web.

      Anybody with half a brain would see that Yahoo will only benefit technologically by going with Google, but we're only talking about investors here ...
      fr0thy2
  • "2 + 3 = #1" (nt)

    nt
    n0neXn0ne
  • Ballmer IS a GENIUS....

    This man never ceases to amaze me and my rep. My rep and I were out on the lake today sailing and enjoying some fine Bordeaux when the email came in on his Windows Mobile "pre-released" device. The edict was out, SteveB was back in the saddle planning this Yahoo deal again. We both toasted each other. When we looked for our respective wives, we saw they were staring at the water, almost catatonic. It was obvious they were COMPLETELY overwhelmed at the SHOCK AND AWE of SteveB's genius.
    Mike Cox
    • 9.0

      Shock and awe! It's always possible, though, that the womenfolk are smarter than their husbands.
      John L. Ries
    • You forget the WOW, Mikey.

      "...they were completely (WOWed) at the SHOCK AND AWE of
      SteveB's genius."
      nix_hed
      • That's for Vista posts (NT)

        NT
        John L. Ries
  • It doesn't matter

    In the free-search-paid-for-by-advertising market both Yahoo and MS are irrelevant.

    Google has won. Unless they do something incredibly stupid they keep their kingdom for years to come.

    MS should look elsewhere for a growth opportunity because frankly the internet qua internet is already sewn up.
    wolf_z
  • Finally making sense

    Glory hallelujah. Cooler heads might prevail. The original merger might have destroyed both companies and taken wall street down with it.
    solomonrex
    • I think Wall Street would have survived

      But Yahoo would have been destroyed and MS severely weakened. Not sure if I like this deal either, but I'll reserve judgement until more details surface.
      John L. Ries
  • Still the same problem...

    When you take two far back of the pack entities that
    have done almost nothing innnovative in a space and
    join them together, however which way you want to
    describe it or organize it, what do you have?

    If you tie two stones together, why should they float
    any better, especially considering the abject failure of
    many Bloatfarm products: Vista, Zune, Xbox,
    WinMobile (WinMobile Killer anyone?) Playsforsure,
    Spot, etc.

    Before it seeks to make a case that it can manage a
    "combined" entity, MSFT should clean up its back yard
    first.

    Its management has shown itself utterly incapable of
    producing profitable products away from the monopoly
    mother ships.

    Still the same old problem: more Bloat from the
    Bloatfarm.

    Bloat does not equal profits; bloat equals LACK of
    profits. (Ever wonder why the MSFT stock price is so
    (ahem) un-bloated?
    Jeremy W
  • Search

    I make good use of Microsoft's Knowledge Base (KB) in my IT consulting practice. Often I ask Microsoft's support site a question about a specific product and fail to get an answer. Then I paste the same question into Google's search buffer without specifying the product and find the right KB article. I'll take Microsoft search seriously when it can find its own KB articles as well as Google does.
    AES2
    • Happy to see that i am not the only one to have noticed this :)

      I had the same problem several time.
      Also once i was looking for an add-in for Outlook and i was unable to find it with the search of the Microsoft site.
      And guess what ?
      I find a direct link to the page where i was able to download the add-in from Google.
      So i agree unless anything from their own web site can be easily found with own search engine they have virtually no chance to efficiently compete agaisnt Google.
      timiteh
      • It was a simple coding mistake

        What the MS search guru's were supposed to type was

        if(target == 'Google Developer Network') scrambleResults();
        fr0thy2
  • MicroHoo Take 2

    Yahoo is becoming a unhealthy obsession for Mr. Balmer. This proposal is going to run into the same rocks and scholes that the first one did.

    1. The Yahoo folks don't want to a part of MS in any way shape or form. It is an ego thing.

    2. Google is going to move heaven and earth to queer any deal between MS and Yahoo.

    3. The EU regulators are going to go over any such union with a fine-tooth comb. The EU alone can scotch the deal by its lonesome.

    4. The window in the US is closing rapidly. If you have been hiding under a rock you might of missed it but the Bushies are at the end of their life span. The upcoming election looks to be a disaster for the Elephant party. This means that the regulatory environment in Washington will shift. Wall Street knows this. Every day that passes raise the FUD level as far as regulatory climate. Remember, proxy fights take time; and that a commodity that MS is running out of. The general election timetable is working against MS.

    5. The deal may never have made sense in the first place. Google domination of this part of the IT space might be so overwhelming that there is nothing that MS can do about it. Google is not Netscape, it does not reside on the MS desktop. There is only so much MS can do to steer folks to its offerings. Google has some of the hottest net applications at the moment; MS has none. Pick a social networking app and MS is no were to be seen, pick a media app and MS is a laughable player. Apple is crushing MS via iTunes, Real networks is making a go of it and even WinAmp has the power of AOL -Time Warner behind it. MS is bleeding money profusely from its media efforts. Google has You Tube Murdock owns facebook, flicker is not an MS product and the blog world lives on Google, Typepad and World Press. Name one prominent blog that sits on MS Live. Sucking Yahoo into the MS vortex may not actually help with whatever fundamental issues MS has in this space. There are some problems you just can't buy yourself out of even with all the funds MS has at its disposal.
    spincitysd9
  • Yahoo and MS have had joint ventures for years....

    Is the press blind as a bat? Or just baiting readers to get more ad revenue????
    Narg
  • RE: partnership???...: We don't have to buy Yahoo outright;

    Have to admit M$ has balls ...
    they wont take NO lying down ...
    BUT, as with all their other "Partnerships" it will just be a ploy to garner technology to shovel into their existing crapware.
    One of the Main acquisitions M$ was after is Yahoo's online open office and utility package - not just improving the M$ online seach engine features.

    I trust Yahoo will see through this veil of intoxicating smoke which appears to be smothering their shareholders at the present time!
    digitrog