Microhoo careens toward closure: Assessing the moving parts
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Updated: The Microsoft-Yahoo saga appears to be heading toward closure, but there are multiple loose ends to tie up. Microsoft has set the pace with a three week deadline--quickly becoming two weeks--for Yahoo to join negotiations, but Jerry Yang and company are proving that they have more strategic alternatives in their bag of tricks.
Got all that? It's all great theater, but Microsoft and Yahoo are really playing a big game of chicken that the portal may actually be winning. It appears that if Microsoft really wants Yahoo it will have to raise its $31 a share price. Here's a look at the moving parts in the deal and a little handicapping:
Is outsourcing to Google a bluff or a legit alternative? Yahoo announced a two-week limited ad deal with Google designed to end right about the time Microsoft's deadline hits. Partnering with Google was viewed as a sure fire way to nuke the Microsoft bid. But the Google gambit only works if Microsoft believes it. Would Yahoo go all the way with Google? It's doubtful. Brian Pitz, an analyst with Bank of America, says that a Google search deal woWe believe it may not make economic sense for YHOO and its advertisers to continue running its own search ad system (Panama) to solely support advertising on YHOO's search affiliate partners. Moreover, we believe it could be difficult for YHOO to re-sell GOOG sponsored listings to its network of affiliates, as they would likely move directly to GOOG or MSFT over time. Ask.com currently employs GOOG sponsored listings on Ask and resells these listings on its affiliate network, with the latter's margins being pressured.
The antitrust game. Both Microsoft and Yahoo are talking a ridiculous amount of antitrust smack. Yahoo says a Microsoft bid will raise antitrust concerns yet turns around to potentially outsource search to Google in a deal that--you guessed it--would raise antitrust concerns. Microsoft is playing the antitrust card hard in a move that's just as comical given the software giant's own antitrust issues. Meanwhile, News Corp. and Microsoft may be teaming up with on a joint Yahoo bid. A News Corp.-Yahoo-Microsoft deal would also raise a few eyebrows.
Rupert Murdoch
Yahoo and AOL talk a deal. And just to throw another wrinkle into this soap opera Yahoo is reportedly in heavy discussions with Time Warner about an AOL merger. Time Warner would love to ditch AOL--a never-ending migraine. Yahoo just wants to either outrun Microsoft or get a nice payday. Strategically, I don't see what a Yahoo-AOL deal really gets anyone. Time Warner gets an exit from AOL, but Yahoo would have to integrate ad networks and resuscitate a brand that has been on the ropes for years. A Yahoo-AOL deal doesn't sound like a long-term winner.
Bottom line: This Microhoo soap opera has been a hoot, but the clock is ticking. Shockingly, Yahoo may actually get Microsoft to up its price. Stay tuned.