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"We're all a bit disappointed really," said Laura McFarlane, managing partner-chief strategy officer at WPP's Beyond Interaction. "It's the search piece that concerns us."
Challening the top dog
Added Adam Kasper, senior VP-director of digital media at Havas' MediaContacts: "I'm not a big fan of big mergers like this in the media world because they tend to limit advertisers options and create less competition but this is probably somewhat of an exception." But, he noted, in this case it was two weaker competitors trying to be a more viable challenger to the top dog.
"It's all about Google," he said, rather than some sort of magic ad recipe that would have been created by merging the Yahoo and Microsoft businesses.
Indeed, as big as Microsoft's bid was (initially $31 a share, later raised to $33 before Microsoft withdrew its offer), it always seemed less about the two companies involved and more about the juggernaut they would challenge -- or try to challenge, at least. But even after news of the takeover talks broke, it was impossible to ignore that, combined, Yahoo's and Microsoft's search share would still only be half of Google's.
The irony now is that even as the deal has died (or is lying dormant, as many believe), Yahoo could outsource part of its search monetization to the leader down the road in Mountain View, Calif.
The Department of Justice is already looking into a two-week test in which Yahoo outsourced a small portion of its search traffic to Google to monetize, but the companies have discussed further search collaboration. And while Yahoo's stock price fell today, the drop was not even close to the sub-$20, pre-takeover-bid level. One reason? Wall Street speculates that a Yahoo-Google search deal could create a big cash infusion.
Advertisers, however, are not so high on that potential scenario. Rob Norman, CEO of Group M Interaction, warned against such a partnership on his blog.
"As for Yahoo's options, there are many but a Google transaction cannot be not one of them," he wrote, comparing the scenario to one in which Chevron and Exxon Mobil combined distribution and retailing -- but only in certain locations and without formally merging their companies. He asks: "Monopoly or not?"
"I hope they don't do it," said Curt Hecht, exec VP-chief digital officer at GM Planworks and Starcom MediaVest Group, referring a search outsourcing deal. "One, because of competition, but also because of the way search works, because it's a global channel and because of the way it scales. It's very important to the future."
He suggests that no entity has really taken command of search globally, and that portals are in the best position to do that. If he were Yahoo's Jerry Yang? "I wouldn't give that up," he said.
There are still options on the table for both Yahoo and Microsoft. One is that the two return to the bargaining table. Another is a potential acquisition of Time Warner's AOL unit. And News Corp. has appeared willing to put its MySpace property in play as well.
Can Yahoo really go it alone?
While some clients praised Yahoo's strategy and seemed interested in its innovations, such as its soon-to-launch Amp ad-serving platform and its 2007 purchase of Right Media Exchange, many remain skeptical over Yahoo's ability to execute such grand plans, in part, not only because of its past history but also because its unclear whether it will have the resources on its own to do so. Microsoft would have given it more resources. Additionally, its service has languished in recent weeks.
Microsoft, on the other hand, is generally weaker in the content and experiences area and would have benefited from some of Yahoo's properties, such as Flickr and MyYahoo. It could bolster its consumer applications and offerings through a series of smaller acquisitions, and there are plenty of content opportunities in the market including properties such as AOL or even, potentially, bidding for the struggling CNET.
Both companies will struggle from general shifts in consumer internet behavior, said Ms. McFarlane. While portals in general are still an "important gateway, but as things become increasingly un-tethered we want the kind of information that portals are delivering to us syndicated out and distributed to wherever we are at," she said. The notion of destination is becoming less important.
Guaranteed to irk Ballmer
Of course all of that probably pales in comparison to the one thing that's sure to irk Microsoft chief Steve Ballmer the most: that Google may end up being the big winner in this whole ordeal.
"We believe that Google may benefit from the disarray of its two largest competitors, as Microsoft has withdrawn its bid for Yahoo," wrote Goldman Sachs Analyst James Mitchell. "Any search affiliate choosing a partner at this time may bias toward Google as the safe choice in an uncertain world, helping Google retain its network leadership" while slowing the growing and most expensive part of Google's business -- traffic acquisition costs, or the payments Google pays out to its affiliates for the opportunity to monetize their search traffic.