Why Yahoo (YHOO) Should Go Ahead With Google Outsourcing Deal (GOOG)
In his sayonara letter, Steve Ballmer urged Yahoo to kill the partnership, arguing that the engineers behind Panama were one of the main reasons Microsoft wanted to buy Yahoo and that, if Yahoo did the deal with Google, they would leave.
And he's right: They will (or at least they'll move on to other projects). That's part of the reason the outsourcing deal makes sense: It allows Yahoo to focus on businesses it can win, instead of throwing money at a war it has already lost.
Others argue Yahoo should now abandon the Google partnership because:
- It's a "now and forever" decision--there's no going back.
- Google will now rule the world.
- AOL outsourced--and now look at it.
- Microsoft's search solution will now be even more marginalized.
Only one of these reasons is valid: There's no going back. The rest aren't Yahoo's problem.
Query share is all that matters--and Yahoo's down to 20%
What will determine the future of the search business is not back-end ad technology but user query share. And Yahoo, Microsoft, and the rest of search sites have been losing share since Google entered the game. This loss of share will likely continue, no matter what Yahoo does on the technology side.
The decision for Yahoo on whether Yahoo should outsource, therefore, should come down to the following:
Does Yahoo realistically believe that continuing to invest in Panama will allow it to start regaining query share? If the answer is "Yes," then Yahoo should NOT outsource to Google. If the answer is "No," it SHOULD outsource.
Based on the past five years, the answer would seem to be "No way, " which means that Yahoo should go ahead and outsource and get as much profit as it can out of search while it still has some share. This is what AOL did, and this decision, at least, was a sane one. AOL's outsourcing hasn't stopped the loss of AOL's query share, but AOL would have lost this anyway.
Bottom line, if Yahoo is finally ready to wave the white flag on query share--which, by now, it should be--then outsourcing makes sense. No sense in continuing to fight a battle you have already lost.
And what Microsoft should do is to clean up its software and make it workable, at the very least. Eating up Yahoo would NOT have saved it.
http://www.bbc.co.uk/languages/yoursay/200506/787.shtml
also, yahoo is sub 5% in europe so fears about regulation are a bit overdone IMO
I used to think that Yahoo would be effectively shutting down search by doing a deal with Google, but I don't think so anymore. That's the Pundinista view, but it's not Yahoo's, according to what Decker said in the earnings CC.
Too, there's nothing that says that Yahoo outsourcing with Google would have to be permanent. I've started using Yahoo search when before I almost exclusively used Google. I don't have the resources to test relevancy (technical search 'accuracy' - best I know it's definition), but it's for sure more fun to use with the new search assistant feature. Go try it yourself.
Decker has said its relevancy is now on par with Google's and the only difference now between the two is thus the greater popularity of Google. Yahoo just needs to find innovative ways to demonstrate it and then who can say that it couldn't gain enough in popularity to gain organic scale on its own?
Popularity = eyeballs.
Relevancy = paid search efficiency.
Popularity + Relevancy = paid search parity with Google.
If you laugh, you're just assuming Google will always own the Keys to the Kingdom. They do right now, but it's extremely hard to keep the keys indefinately.
Dell had them not long ago... Keys to the mystical "model" that could never fail.
Starbucks had them... Keys to the mystical "model" that made $5 coffee immortal.
Yahoo's got a chance.
please post this poll on AI and let's see what people think the closing price will be on monday evening
http://avc.blogs.com/a_vc/2008/05/where-will-yhoo.html
click on the share tab and get the embed code
i've asked a bunch of bloggers to do this so we can get the most possible votes
fred
Now they get the ad contract for Yahoo!, the number 2 search engine?
Yahoo! is completely marginalized by this deal. With Microsoft at least they stood a chance to go mano-a-mano with Eric and co.
I haven't a clue where Yang and Decker are coming from at the moment. They screwed up big time and one day they will be forced to look back and shake their heads.
Watch their stock tomorrow and for the next 2 years. In the end it really is about the shareholder and shareholders were betrayed.
Unbelievably really!
It is a problem of technology.
If Yahoo has inferior technology it will have a less capable ad system and a weak search engine.
The argument that abandoning one to concentrate on the other assumes that it's just a matter of work hours and effort. I don't think that's all there's to it. I think it's also a matter of talent and resources. While Yahoo may end up making more money with a Google system, Google will also now benefit from any rise in Yahoo and Yahoo will never catch up.
Imagine that Yahoo becomes a donkey and Google carries a stick with a carrot. Yahoo does a lot of work but never gets the carrot, and Google gets where it's going.
Second, a share buy-back is extremely unlikely. We all know by now how emotionally immature the Yahoo braintrust is but throwing good-money after bad requires people with suicidal tendencies on top of everything else.
Third, the next natural move for both Yahoo and Microsoft is to go after the one remaining option for "ad" eyeballs which is social networks.
Let the Facebook courting begin....(maybe after we tally the class-action lawsuits first)
When Overture was purchased by Yahoo!, Google and Yahoo! search marketshare numbers were about even. Of course, Google has gobbled up marketshare ever since. One of the main reasons is Google figured out monetization faster (reordering results) and was able to offer better revenue sharing deals to partners than what Yahoo! could afford. Google also took more risks by sometimes giving back as much as 105% to 110% just to secure a deal. Plus, Google was the new, hip thing and searchers flocked to Google to conduct searches.
Panama has closed the gap from a monetization perspective but the gap is still wide and even if the gap was completely closed, it doesn't account for the fact that substantially more users search on Google than Yahoo!. I don't see how outsearching search advertising to Google fixes this. Evidently Yahoo! can make more money by using Google results and sharing revenue with Google than by producing the results on their own or else the deal wouldn't be considered, but even this revenue would decrease as marketshare continues to slip.
The people that say Yahoo! should just outsource search and focus on other things don't realize how much revenue Yahoo! gets from search. There just aint that much money in those other things. Even display advertising where Yahoo! is the industry leader is a distant second to search advertising. By selling out to Google for a short term fix, they really would be selling their souls. Yahoo! more than any other Google partner would be relying on Google for a dangerously large percentage of their revenue. Of course shareholders probably don't care to look that far down the road when the stock is tanking 40% on Monday or whatever it's going to do.
Neither Panama nor outsourcing paid search to Google would appear to have anything to do with driving market share in terms of the number of queries. It is inconceivable that Google would offer its paid search results to Yahoo if doing so would pose a threat to Google's ever increasing search query share.
The reason Yahoo acquired Inktomi and Overture was so that it would not have to be dependent on third parties for a substantial amount of its revenue. Yahoo should take the money from Google in the short term, but it then needs to use that money to fund continued efforts to close the monetization gap. Of course, given that Panama has now been proven to be a failure, Yahoo needs to put new people in charge of this so that it has a chance of success.
The whole point of Panama is to increase revenue per query, and this is also the purpose of a deal between Yahoo and Google. In this deal, the search is still provided by Yahoo, and the monetization will be from Google. Ask.com already adopted this model for years. (AOL, however outsourced everything, including search and monetization, to Google.)
Also, many people didn't get why Google have a better monetization. It is simple: Google has the biggest search share and the most affluent search users. Therefore, AD buyers want their AD to be shown on Google, and the price is bidden up
From Mr. Ballmer's letter to Jerry Yang, I got the impression that MSFT is more interested in Panama than Yahoo's search engine technology. I would say MSFT still don't get it: the most urgent thing for them to do is to increase their search quality (that is, to enhance their search engine technology), and the money (monetization) will naturally follow.
I can't go with you on this. I think the Google plan was akin to jumping off a ledge to keep Microsoft from imprisoning them. Yahoo has tried outsourcing search before - to Google in fact! - and what they found was they lost those people. They went out the backdoor to Google and never came back. Honestly, I think they need a scary CEO that will centralize their increasingly fragmented management pods and get rid of some of the dead weight... and one that will make a real decision about what they are. Are they a social networking site? Are they a search company? Are they a branded advertiser? I don't think they have a clue.
Google's mission seems to be to make things easier and less expensive for both programmers and consumers. Yahoo's mission seems to be to chase Google when they step onto some perceived turf. But Yahoo is in so many businesses in a half-assed way they just seem to be pulled in different directions like taffy. There's no focus or direction that isn't dictated by competition. All defense, no offense. No good. They need vision.
To give up search, they're giving up the market they have the biggest hold on. They'll be left with utterly marginalized me-too segments. I don't think that leaves them any better off than they were before. And it basically sends a message to employees that they've given up. They wouldn't be able to hold onto anyone competent who really understood the implications of surrendering search. It's just a bad, bad idea.
We will look back on this weekend as the decisive moment when Google took an unassailable position in search advertising and when their stock began a precipitous ascent.
As with my other prediction I think I will be vindicated in the near future.
You have some sway with Marc Andreessen I'm sure.
Would you mind asking him if he would detail the ins and outs of what would be involved with a Yahoo outsourcing paid search deal with Google... or anybody else that could do an excellent job.
I don't mean the regulatory matter, but the mechanics. How it starts... stops... voluntary search, paid search keywords, the works.
I don't think I've seen anything that explains it. Just exactly how is it conducted?
I still don't think a deal with Google would necessarily need to be permanent, nor would it deter Yahoo from continuing R&D in all forms of search, according to Decker at the earnings CC.
If he will, tell him thanks.
I can't remember... but didn't Mahaney at Citi put a market cap number on what outsourcing search to Google would be worth for Yahoo?
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BTW, to all:
I still contend that DOJ will not object to an outsourcing deal between Yahoo and Google, because it doesn't violate anti-trust laws and preventing it would deny efficiency and profitability to consumers in a manner that is inconsistent with the mission of the Anti-trust division of the DOJ, and is also discriminatory and arbitrary. This is not the function of the DOJ.
I say it will fly, if Yahoo and Google want to do it.
"Also, many people didn't get why Google have a better monetization. It is simple: Google has the biggest search share and the most affluent search users. Therefore, AD buyers want their AD to be shown on Google, and the price is bidden up."
Actually, that is only a portion of the story. While @Anon is right to point out the difference between search and the PPC ads being served along with the search, Google's gains in search share AND PPC came due to their obsessive and continuous refinement of their ad serving algorithms, as well as their efforts to keep the natural search results relevant (and free of SEO spam such as low quality Adsense-arbitrage sites etc., which is a whole other story).
Today, Google's "universal search" (including images, videos, maps, product listings, etc. in the search results) fine-tunes itself continuously. If no one clicks on the images that it might try to throw up for a given keyword, those images will disappear again, and so forth.
Yahoo is way behind on this, and hence keeps losing search share, and in turn PPC share and monetization. But the even bigger issue is that the PPC advertisers (internet marketers, etc.) prefer the Google Adwords back-end by a large margin, while Yahoo has done nothing to persuade them otherwise. For a while, they weren't even sure if they should keep allowing access to the old Overture "Free Keyword" tool, one of the last best hopes of keeping mind-share in PPC.
Rather than innovate past Google, they have been playing "me-too"/catch-up, never really keeping up due to the ever-widening monetization disparities. This is deadly vs. a competitor that has built out a dominant leadership position and has come to own the frickin' verb of what it means to do internet search, i.e. "to google something"...
That kind of mindshare is nearly impossible to reverse UNLESS you overtake them on the flanks with completely new categories/innovations. If Yahoo e.g. were to figure out a much easier/safer to use Adwords alternative (e.g. for local small businesses most of which still have no clue how to operate Adwords), if they had opened up their real-time search data to the advertisers for them to make better decisions (unlike the semi-cloaked data that Adwords offers, requiring the serious PPC advertiser to use any number of third party analysis tools, etc.), or a completely novel way to contextualize the ads, then we might be talking.
So this isn't about the affluence of the Google users, otherwise Yahoo could not outsource THE AD SERVES (NOT the search) and get 60-80% higher returns. Note that we would be talking about the same (Yahoo) search users.
It's the advertisers that are increasing their conversions in part due to the recent "Google Slaps" and can therefore afford to pay more per click. Basically Google has limited the access to its finite search inventory through things like the "Quality Scores" etc.
If you want more details on this stuff, read here:
http://businessmindhacks.com/post/why-recent-google-q1-earnings-should-have-your-ears-prick-up
The other side of the coin (and still branding/positioning related) is the question of context in which an ad is served. With Google, since Google stands for search, users are in a "searching for a solution" mindset much more so than on Yahoo (or MSN), where people may be for any number of reasons (social, email, IM, news, etc.).
This is the real draw-back of the portal strategy which by definition leads to brand dilution: You have no idea about the user mindset, and most of the pages you serve create contexts that are counter to anyone clicking on ads.
How many ads have you personally ever clicked on that got served with your free online email? Your chat? Your Yahoo groups, etc.? Chances are, none. After the shortest of mental adjustments, you likely started to completely ignore those ads.
Even Google had to learn this lesson, when they recently found that the social networking inventories for Adsense ads (e.g. on MySpace) were converting far under-par vis-a-vis the PPC ads: People just weren't looking to buy when networking on-line. It's two different things.
From the point of view of the advertisers, all that matters to them is per-click cost and conversion. That alone determines whether their PPC campaign is viable past a few days. If Yahoo could allow them to get workable numbers, they'd be more than happy to bid higher on Yahoo's search inventories.
So I'd postulate that it's this mindset differential rather than any affluence disparity. And I'd have to disagree with Henry on his tenet that "Query share is all that matters". In truth, monetization is what matters most, and Google is so far in the lead for all of the reasons cited above that it isn't even funny. So it's query share AND "quality". Hopefully these explanations have shed some light on that.
Ixnay on the MS deal perhaps, but this only puts them on a faster lane to their own demise; and this time, in the hands of Google, the real one.
When a query goes to the Yahoo search server, it generates the search results page (presumably still using Yahoo's own search results for now), and while building it has a call go out to the Google ad server that returns the ads that Google would be serving on it's own results page (SERP) for the same query keyword(s).
It's simply about the PPC ad portions on the otherwise same page. The function call to Google's service is trivial from a programming stand-point (and once again, they have already run this test in recent weeks). And all Google has to do (though Yahoo will likely be doing it as well) is keep track of the numbers in terms of ad serves and revenue, then divvy it up according to whatever agreement they have.
In a sense, Yahoo SERPs would become a specialized case of a Google Adsense page/site (minus the "Ads by Google" line I presume and likely with better terms)...
Hope that explains it.
@Roy Howard: the problem is that Panama was their last best effort to stem the tide, and it has failed... while I don't agree with Henry on all points, I think that outsourcing paid search ads to Google for now might generate enough cash for them to, if invested wisely, create innovations that could allow them to outflank Google or others, and survive.
They still do have a ton of eye-balls (which in my view would have been very much at risk in the event of a MSFT deal), only not much of an idea as to how to monetize them. Agreed on the lack of focus and mee-tooism.
Unfortunately, from what I hear, it's truly a structural problem with Yahoo at this point. The hierarchies are too bloated, the engineer morale is low because they've been shut down by some upper-midlevel management type too many times, etc. Who would have thought that Yahoo! having started its life as a counter-culture company of sorts, would end up almost as corporate as MSFT.
Only a complete house-cleaning and flattening of the hierarchy might do the trick, I guess some had expected Jerry to do something like that, but have been disappointed. Maybe a severe dive of the stock tomorrow morning could yet prompt such a more radical and badly needed move.
What does SERP stand for?
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Tell me if this is a correct understanding in plain english:
You search for "new cars" on Yahoo, here:
http://search.yahoo.com/web
... and get this:
http://search.yahoo.com/search;_ylt=A0geu.QQZB5INvIAUwql87UF?p=new+cars&ei=UTF-8&iscqry=&fr=sfp
... but instead of Yahoo's sponsored search links (paid search ads), you'd get ad links provided by Google (but as though they were just Yahoo's own sponsored links), and thus a click earns a fee paid to Yahoo with a sharing payment to Google.
Is that correct?... What's the sharing arrangement?
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As I see it this is no big deal and probably worthy of being done in a deal with Google and Yahoo for outsourcing now.
If I understand correctly, then Yahoo's search would still produce its own non-paid-search results as well (and Decker has claimed that relevancy there is on a par with Google now), and the search participant couldn't care less if Google's sponsored ads are displayed and they probably wouldn't be identified as directed by Google (right?), and so Google is getting eyeballs it doesn't have from Yahoo's valuable and popular portal, and Yahoo is getting dramatically higher profitability from cross-selling by using Google's sponsored links instead of its own... and Yahoo can, according to contracts, terminate the use of Google's links if and when its query share increased... then
...what's not to like?
It's a marginal win-win-win-win all the way around. Google wins. Yahoo wins. Yahoo's ordinary query participants win. Yahoo's paid search advertisers win.
What TF is not to like?
ugh, the partnership sucks on so many levels if you really think you're competing w/the G.
I'm having a hard time understanding why queries would necessarily decline on Yahoo.
It doesn't seem probable to me that the gross number would be affected at all. You're putting too much assumption somehow into the mindset of the average portal search/user.
Why, if I'm on Yahoo's site, or if I happen to use Yahoo's search over Googles, would I possibly care about where sponsored keyword paid ads come from when I search on Yahoo, and how could that influence me to use Yahoo less for search.
I don't understand where you're coming from.
http://www.cnbc.com/id/24457487/site/14081545?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo
I believe that Yang and Yahoo are truthful. I think they represent a high character.
The way you conduct yourself privately and publicly speaks to c-h-a-r-a-c-t-e-r. And everything Yahoo has written and said f-i-t-s exactly with the way they describe it, in my personal opinion.
at the same time, query share will likely erode at a faster pace than before if a "powered by google" or some sort of G branding appears on Y!
the stupid part of the deal for Y is the loss of data, loss of control. but jerry et al backed themselves into this corner...
assuming there is a deal, it will be interesting to see if it is implemented in all markets. if it is not across the board i don't know if Y mgt has any grasp of the business they're in.
I do not see much to celebrate either way. Joining Msft certainly was better for the stock, and offered a remote hope of competition for Google. Selling out to Google so they can squander money on Yang's dubious projects seems pure vanity. Between bad and worse Yahoo chose the latter.
i was saying their rev will be linked more to queries than before as control is being relinquished w/such a deal. raw queries on yahoo will grow just as a rising tide lifts all ships, however they're leaving their destiny (pricing, data, and countless other insights) for their #1 rival.
but i guess this isn't THAT big of a deal since G already knows what's going on with a good chunk of Y's display biz thanks to dclk
on the bright side, maybe Y finally figured out they're a content company dabbling in technology & will get back to their core competency.
btw joe, some good posts over the last week or so. much appreciated
I appreciate your help on this (Alex too), but I'd like for either or both of you to comment on the following. It runs counter to your "loss of control" thesis, zaller, but I'd like Alex to comment too...
thx in advance:
http://biz.yahoo.com/rb/080504/yahoo_microsoft.html?.v=5
I just find it too difficult to accept that a company pushing 8 bil in annual rev, with expertise in search (the own the technology for keyword marketing), that says they're not abandoning search with an outsourcing agreement with Google for paid search, would either be confused about its "stated strategy" or deficient in judgment about the conduct of its own business.
As you can see from the linked article, control doesn't seem to be an issue with other portals.
I still think you're hearing hoof-beats and thinking zebras instead of horses.
I think outsourcing trips the light fantastic and I hope they do it.
read the article. as unlikely as it may appear to some, i believe firmly believe management is deficient in judgment about the conduct of its own business.
just look at the recent acquisitions...all were reactive to events in the market. a company with a clear vision of where it is going, with a confident management team who firmly grasps their business, would not be so easily swayed by such catalysts IMO.
like i said earlier, from a pure financial "prop up your stock price" POV the deal makes a ton of sense. it is the only thing that can produce significant incremental CF for the company.
from a strategy POV, it is stupid - there is no other word. when you give up the data you're handing over the keys to the kingdom. everything in this online world is linked in a complicated mesh. the companies who can tie together all the data for meaningful, actionable insight win while others become more dependent upon them.
By the arguments you put forth here, Apple should exit the PC business. Everyone who has only 20% marketshare should give up. That's stupid, even before considering that Yahoo is kicking Google's ass in some markets.
The three biggest *competitive* problems for Yahoo are:
(1) The Google brand is exceptionally strong with consumers (and advertisers are well aware of that).
(2) Google is a talent magnet. All the best and brightest are doing startups or going to Google. This is a positive feedback loop for Google and a negative feedback loop (brain drain) for everyone else.
(3) The Windows monopoly, and Google/Microsoft OEM deals with PC manufacturers, ISPs, and mobile carriers. Being the default search engine is so critically important. Most consumers do not install other browsers or change their browser's defaults. So whoever sets the default search engine last, wins.
Of course, Yahoo has plenty of other problems that aren't competitive. Here's hoping the entire BoD is replaced at the next election, and that new leaders will decimate (literally) the insane number of VPs.
Their capabilities would definitely erode. This was described in some detail by Mahaney in the TechCrunch interview, where he recounted the developments at AOL. (The full text of the interview is really a must-read for anyone interested in this entire situation.)
But of course it would be up to Yahoo with how they spend that money. If they invest it in serious innovation instead of mee-too projects, they might have a shot.
As it stands now, there is very little in terms of core competencies that they have really kept even or led on. You have to keep in mind that Google's ability to improve its search and ad serve the way it has is also predicated upon their cloud infrastructure abilities. Search is serious business as far as scale is concerned. The others are having serious issues keeping up from a tech standpoint.
@joeblow:
That is why Yahoo's search is also seriously behind Google's evolving "Universal Search". @Zaller is partially right in that Yahoo's share will likely keep declining over time (not rapidly though), simply because they will fall further behind in search development as well.
UNLESS they make a very serious effort to come up with a next generation form of search that somehow bypasses what GOOG is currently doing. Otherwise, they would of course be more and more dependent.
Of course, it's Google that is hard at work figuring out the next steps in search... while MSFT and Yahoo just wasted another 3+ months on this diversion. Maybe they'll do it yet again in 3 months...
If you think about it, Yahoo hasn't been able to do it with moderate resources, but even worse, MSFT/MSN/Live hasn't been able to do it with nearly unlimited resources. Why? Because the Windows/MSFT brand acts as an albatross around the neck of any Internet play that MSFT tries: Henry already pointed out the unfortunate renaming of Hotmail into "Windows Live Hotmail", where they were even seriously considering ditching the Hotmail brand alltogether. Horrible...
Ries & Trout point out that large companies are always in danger of from the inside out hastening their own brand dilution. This is because of the fallacy of the "we're a big/strong/important brand" mindset that will make naming things with your own brand almost impossible to argue against in company meetings.
Except that it is wrong from a psychological perspective of how brands work in the minds of the consumers/customers. It's about tip of mind awareness for a category. Ask" What is a ____?"
If the answer is unclear, your brand is already diluted.
Kraft is the best example of this form of brand dilution. Their only #1 brand is the one that they resisted naming "Kraft" first and foremost: Philadelphia Cream Cheese (by Kraft). Everyone knows the answer to the question "What's a Philadelphia?" (in a food context). But "What's a Kraft?" has no such clear answer.
The company that has done it right is Proctor & Gamble. Each one of their products is built up as its own brand and typically is the category leader, commanding a serious premium: Tide, Dawn, Bounty, Duracell, Gilette, etc. (to see their full list of brands, go here:
http://en.wikipedia.org/wiki/List_of_Procter_&_Gamble_brands
)
You know the answer to almost each question: What's a ____?
So Microsoft should create a new internet product that is for once NOT named MS or Windows, because frankly, the internet thing has nothing to do with Windows. It's their built-in (maybe even unconscious) resistance to the internet that is always at play. Bad idea. Can't let your ego get in the way.
What became the leading Web video site? "YouTube", and NOT "Google Video", and even less some monstrosity like "Windows Media Player Web-Edition Video Sharing... Site" :)
@joeblow:
SERP stands for "Search Engine Results Page"
Otherwise you did understand the process right. I have no idea what the share arrangement is, but it would have to be pretty substantial for Yahoo for them to consider this option and be able to make so much more per search (through more ad-clicks on ads that have been bid up higher through Google's Adwords).
As I wrote in a previous comment, Yahoo is coming across and impressing me as a truthful company.
Thus I take Decker at her word from the earnings CC when she says outsourcing wouldn't mean the end of search or search R&D at Yahoo.
Go listen... tell me if I heard wrong.
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To, let's examine outsourcing in another way. It presents some unique understandings:
-If I had ownnership of the world's most valuable cell phone operational technology, could I outsource the manufacturing and make money?... What if I ignored the manufacturing and licensed the technology directly to the manufacturers, could I make money?... Who would I be? - 3-Com? I haven't kept up, but isn't that the way they model their business?
-If I deliver your overnight FedEx packages, but I don't work for FedEx, do you care?... Do you even know that I don't work for FedEx?... I wear the uniform... I talk FedEx... I walk FedEx, but I'm a third party independent provider of contract services to FedEx. Do you care?
FedEx is a delivery service. How can FedEx make money if it's paying a third party to deliver your packages?
This one will get a tad freaky, but it's all the same:
-If I have the world's most successful search algorithm, do I have to operate it myself?... If I were Google, and if I could outsource all my technological operations to a third party and yet maintain royalties for the use of that algorithm that netted me more than the net I could extract from operating it myself, then wouldn't I outsource it?... In other words, would I consider outsourcing Google t-o G-o-o-g-l-e if I could net more that way than by operating it myself. You get the picture?
MSFT's objectives for claiming that Yahoo would violate its own stated strategy for search by outsourcing to Google are different from what MSFT's own objectives are. And yes, I'll stipulate that Yahoo must have some core dedication to paid search advertising, but so what!... Objectives change when conditions change. The condition here (even after all of Yahoo's expense and development) is that Google's paid search keyword productivity is ass-over-elbows better than anybodys... anywhere, period. Get it?
MSFT would abhor any contributory funding it might provide Google were it to outsource its own paid search to Google. The reason is because Google is a threat to its op/desktop monopoly.
Yahoo ain't got such a monopoly to worry about, thus a mutually productive outsourcing deal between Yahoo and Google could not exist in any such mutually beneficial fashion for MSFT for the reasons I gave. It can't exist for them by definition. Ballmer is imparting to Yahoo in that walk letter his own objectives, not necessarily Yahoo's. They are capable of understanding their own objectives better than Ballmer can, whether they've changed or whether they've stayed the same.
Thus, in a real practical sense, MSFT would choose to disinfranchise its own customers from the beneficial efficiency and productivity they might gain from MSFT outsourcing its own search to Google, merely because MSFT would abhor contributing to Google's financial success... that financial success likely to capitalize efforts to unseat MSFT from its long-held monopoly. This is the reason for Ballmer's terrorist letter of withdrawal to be written. He didn't just withdraw... He wrote the Acts of the Apostles, because he's scared shitless that Yahoo will outsource to Google and that he can't stop it with anti-trust complaints if they decide to.
I've said I don't think DOJ would stop it. We'll see possibly, but they'll be acting in a discriminatory manner against marginal consumers to restrict them from efficiencies others are not restricted from if they do, and that will surprise me a lot more than MSFT's walking surprised me.
You get the picture?
the deal will go through for all the reasons you and others have stated.
all im saying is w/the outsourcing deal, management would show a complete misunderstanding of their business. furthermore, they'd look increasingly foolish if they continue to reference google as their primary competitor. doing the deal, which is y's only option, shows a complete change in the company's strategy from a content creation and monetization play to pure content creation - this is fine. the funny think is management will spin it as doubling down on display advertising since thats where all the growth is for the next few years bla bla bla.
the reality is, going forward, you'll need all that search data to deliver similar efficiencies in display; something that yahoo will fail at with their new project.
yahoo should leverage goog/dclk as a technology provider to monetize all their content - search and display. rather, they'll use this search deal to buy a year or two as they work on the doomed display panama project squandering another couple billion of shareholder $, only to defer to google in the end.
frankly, im a bit sick that so many of the top brass are still there after this panama debacle. after wasting so many resources on a complete failure it's time to flush the toilet.
you gave a nice summary from a ROI marketers POV.
What about the brand marketers that spend millions on yahoo?
didn't google buy doubleclick because they saw they were leaving display ad money on the table?
Alex, you gave a good analysis, but only half of it. CPC is not the all there is to online ads. In fact, i'm suprised you didn't ppint out that CPC has really been replaced by CPA - cost-per-action. the ad buyer measuring CPA - purchases, registrations, some tyoe of action by the user beyond a click.
Of Q2, Yahoo! says that it sees Q2 revs of $1.73 bln - $1.93 bln -(And that's a projected rise of $0.38 bln - $0.58 bln or, +28.15% - +42.96% Q/Q)
Can anyone advise of what they feel Google will achieve for the Q2 period?
What am I missing here?
:)
Of Q2, Yahoo! says that it sees Q2 revs of $1.73 bln - $1.93 bln -(And that's a projected rise of $0.38 bln - $0.58 bln or, +28.15% - +42.96% Q/Q)
Can anyone advise of what they feel Google will achieve for the Q2 period?
What am I missing here?
:)
I haven't seen anywhere that Yahoo is planning to outsource banner ads as well to Google. Where do you have any information on that?
Yahoo wants search to garner as much revenue for them as they can, regardless of how it is that they derive it. If they continue to do R&D to protect themselves from being boxed in by Google, so be it. If they discontinue search all together, so be it. If they start and stop with Google, so be it. It only matters to them. Pride is no substitute for practicality.
People that search here:
http://search.yahoo.com/web
...for whatever reason, are s-t-i-l-l going to search there, for whatever reason, with or without a Google outsourcing deal. People who never search there won't search there. But, those who search from Yahoo represent eyeballs that Google can not get revenue from. They are as valuable to Google in a cross-deal as they are to Yahoo, and they're more valuable for search revenue with Yahoo outsourcing them to Google, for Yahoo, than if they only searched on Yahoo. Yahoo is perfectly entitled to control of their own data.
Hey, that brings up a good point. Google's YouTube runs on dumb servers that are designed to be dumb enough not to know when some peckerhead 14-year-old uploads an entire movie in 10-minute segments. So, that's the ticket. Yahoo could just make them use the dumbass YouTube servers in their deal as well. Yeah, that's it... they could modify 512 of the DMCA to facilitate their outsourcing deal. What you don't know, you don't know... you know?
--
You spoke of control. I'm by no means positive, but I think Google does all the outsourcing for Ask.com (formerly Ask Jeeves), a unit of IAC Interactive (Barry Diller), found here:
http://www.ask.com/
You see anything about Google there? Do a search for "apples" and you get this:
http://www.ask.com/web?q=apples&search=&qsrc=0&o=0&l=dir
You see Google anywhere? You think the searchers on Ask.com care who does the search?
Do the Google search on "apples" and you get this:
http://www.google.com/search?hl=en&q=apples&btnG=Search
It's hard for me to make a quick comparison but I think the sponsored links are pretty much identical.
Here's AOL.com:
http://www.aol.com/
...but, hey, big difference here. Google is an equity owner in AOL and I think part of the capital infusion included an agreement for outsourcing to Google and they probably wanted it branded as well.
I may be wrong but I think Google would fall all over themselves for a search deal with Yahoo and they probably wouldn't have to indicate the "Google Enhanced" notice. Am I wrong?... If I am, why doesn't it appear on Ask.com?
I think many of you are making too big a deal about this outsourcing. If the world is one big railroad track, and everybody wants to ride it, and the track owner doesn't abuse it, and everyone that rides it benefits from the ride, then the DOJ (regardless of crybaby MSFT) will NOT stand in their way.
The DOJ will not make a person or a corporation buy a boat that won't float. Google is the only builder of boats that float (relatively, not absolutely). Yahoo's boats won't float. MSFT's boats won't float.
What happens if Google becomes the only provider than can sell boats?
Well, it's a lot like MSFT being the only provider that can sell PC operating systems, hmmm?
But if Google's search algorithm is so powerful that it gains this near total dominance, then Yahoo and all other portals just face the music, readjusts their strategy for content and the coming world of the cloud in subscription services, and monetizes their abundant (Yahoo at least) portal eyeballs in all the unique ways that they'll have to anyway to survive. Who cares who does their search! Even Decker is planning "Search Monkey" to outsource search R&D at no cost to its paid search advertisers (and anyone else) in ways that may yield a search world that is a commodity service. How about that for thinking ahead?
However, MSFT is left in another situation all together, because Google will have the financial jet fuel to go after what is the heart of MSFT's cash cow... the op/desktop monopoly... and that risk is particular to MSFT and nobody else... with the possible exception of Apple, but to my knowledge Apple doesn't compete that much, if any, with Google... so no cruise missles headed to Cupertino at the present from Google.
So, you see, MSFT is the big odd-man-out here, and they're squawking about it, and they'll squawk even louder when Google begins to get into their panties.
All Ballmer's done is to first bomb his own employees and shareholders into oblivion, then run the blender on full blast for 3 months, then bomb Yahoo's employees and shareholders next, and all he has now is a bombed-out strategy with confused employees and skeptical newly-jaded analysts, while at the same time, according to Jim Goldman's sources at Yahoo, lying about how it all went down.
Yeah, Ballmer... good job bud.
Yahoo's *Search Engine* is competitive with Google's. And those two beat MSFT's Live. Admittedly, Yahoo's share of search is slipping, but it's slight and steady. IMHO, Yahoo won't be out sourcing the actual search engine because that's not what's causing them to be losing the race.
Google's *AdWords* is what dominates the marketplace. Yahoo has done the math and has figured out they can make more money outsourcing the *advertising* than they could on their own. Panama was a last gasp attempt to beat AdWords.
In other words, if your profit margins are best in the industry but your market share is modest, you will live comfortably. To Google's tremendous credit, it has managed to corner the market on both.
If, in an alternate reality, Yahoo had AdWords/AdSense and Google had Overture/Panama, the situation would be entirely different.
For the purposes of this, I wanted to keep it simple and not introduce CPA (Cost-per-action). Granted that CPA networks/affiliate set-ups are becoming a bigger deal all of the time in internet marketing, but then again:
1) Google is only offering it in beta and is currently closed to new sign-ups (read here:
http://services.google.com/payperaction/
),
so it's not (yet) a major consideration vs. their bread-and-butter Adwords/Adsense CPC/CPM models.
2) If you take CPC (Cost-per-click) and know your conversion numers (for whatever your desired outcome, e.g. purchase, opt-in, etc.), then you have a very close approximation of CPA. It's just that you have to calculate it yourself...
Now if you know your life-time value of customer...
CPA
branding vuia display ads.
CPC is becoming increasingly irrelevant for several reasons.....click fraud...shopping carts not getting 'checked-out'....search advertisers increasing focus on ROI demands that they want more then a click.
(A) Could this possibly pass anti-trust oversight? Last I saw, a company with >50% market share (of SEM in this case) that tries to acquire the #2 player would be considered monopolistic.
(B) How sustainable is the revenue stream? Yes, right now it may be profitable since Google will make rev share payments to make it profitable for Yahoo. But with monopoly position for search results monetization, why wouldn't Google simply scale back rev share in the future? Yahoo would have no monetization alternative - it's own system would have lost all its advertisers.
(C) How would that effect Yahoo's overall advertising strategy, which is to make Yahoo a convenient one-stop shop for advertisers to get search and display (and other tactics like paid inclusion, and future formats etc) in one place? It's a fact that advertisers want convenience. At some point, advertisers won't look at SEM and Display ads as different, but simply different formats to be managed in the same campaign or at least under the same account. Advertisers want one place to store campaigns, ad creatives, and view and optimize performance reporting. This new strategy makes that value proposition stronger for Google and weaker for Yahoo.
(D) What are the value of options? Yes, Yahoo slaps down a deal at $33/share. Does that preclude a future deal at $37/share? I don't believe so. Outsourcing search and losing that entire business probably would though. Getting rid of an entire business gets rid of options, which should also play into valuation.
This is a strategic shift - perhaps you can argue Yahoo needs to simplify its strategic scope to just display-oriented branding to monetize its properties, but it doesn't look like you've done any analysis as to the near-term vs. long-term revenue impact. Do you even know what the near-term lift would be?
It's not clear what your objective is, but if it's a short-term bump in revenue then yes, clearly it's an option. If it's a new long-term strategy, your simple article hasn't done any better a job than Jerry and Sue have layed out. It's funny, it's so much easier to make an argument sound convincing when it's not holistic.
(A) Could this possibly pass anti-trust oversight? Last I saw, a company with >50% market share (of SEM in this case) that tries to acquire the #2 player would be considered monopolistic.
(B) How sustainable is the revenue stream? Yes, right now it may be profitable since Google will make rev share payments to make it profitable for Yahoo. But with monopoly position for search results monetization, why wouldn't Google simply scale back rev share in the future? Yahoo would have no monetization alternative - it's own system would have lost all its advertisers.
(C) How would that effect Yahoo's overall advertising strategy, which is to make Yahoo a convenient one-stop shop for advertisers to get search and display (and other tactics like paid inclusion, and future formats etc) in one place? It's a fact that advertisers want convenience. At some point, advertisers won't look at SEM and Display ads as different, but simply different formats to be managed in the same campaign or at least under the same account. Advertisers want one place to store campaigns, ad creatives, and view and optimize performance reporting. This new strategy makes that value proposition stronger for Google and weaker for Yahoo.
(D) What are the value of options? Yes, Yahoo slaps down a deal at $33/share. Does that preclude a future deal at $37/share? I don't believe so. Outsourcing search and losing that entire business probably would though. Getting rid of an entire business gets rid of options, which should also play into valuation.
This is a strategic shift - perhaps you can argue Yahoo needs to simplify its strategic scope to just display-oriented branding to monetize its properties, but it doesn't look like you've done any analysis as to the near-term vs. long-term revenue impact. Do you even know what the near-term lift would be?
It's not clear what your objective is, but if it's a short-term bump in revenue then yes, clearly it's an option. If it's a new long-term strategy, your simple article hasn't done any better a job than Jerry and Sue have layed out. It's funny, it's so much easier to make an argument sound convincing when it's not holistic.