I'd Like To See A Plan Out Of Yahoo! Instead Of A Rejection Letter

While Yahoo!’s board did not lay out a plan to increase it’s stock price (I laid out one on this blog last week), they are apparently going to tell Microsoft that it’s current offer is too low. The Wall Street Journal has the story here.

Some people seem to think this is just about getting another $5-$10/share out of Microsoft. And it may well be. The WSJ story mentions that the board may entertain an offer above $40/share.

I am hoping Yahoo! takes another tack. As I said in the post I linked to above, I think they should negotiate a deal to outsource their search to Google, dividend out the Yahoo! Japan and Alibaba shares to that their value isn’t lost in the share price, and restructure Yahoo! to focus on the businesses where they have a competitive advantage.

Another thing they could do is offer their search business to Microsoft for a short term deal, like three years. Maybe Microsoft would be willing to pay up for that to keep it out of Google’s hands.

This Fortune article seems to indicate that the anti-trust issues surrounding a business deal between Google and Yahoo! are not as large as the anti-trust issues Microsoft would face in it’s effort to acquire Yahoo!

I am happy to see Yahoo!’s board taking a strong position with Microsoft, but I think they could take an even stronger one. Dividend out the Yahoo Japan and Alibaba shares to get that value out of the equation. Then put forward a restructuring plan that takes a lot of cost out and focuses on the core businesses that they make real money on. And then put their search business out to bid between Microsoft and Google. That’s my suggestion.

#VC & Technology

Comments (Archived):

  1. JoeDuck

    Yes – a plan is needed and as a shareholder I’m annoyed that the Yahoo Board is clearly more worried about fending off MS than about fixing Yahoo. I’m not as skeptical of an MS aquisition and think Yahoo will effectively be forced to sell as shareholder frustration mounts, but your plan seems viable as well. I worry that outsourcing search and monetizing to Google may effectively kill the best chance Yahoo has of getting back in the game – finding better ways to monetize and interact with publishers to compete with Google adsense.

  2. dave

    Maybe they should have a conference with guys like you and with all possible humlity, me, to talk about ways to take Yahoo forward.Unfettered by their internal concerns, we might well find a bunch of ways forward that the internal viewpoint wouldn’t.

    1. fredwilson

      i’m game for that dave

  3. Michael

    Fight MSFT woo hoo! That’s great… But your plan is a very typical investment banker kind of plan. All it does is boost the short term stock price. To use a medical analogy, it simply treats symptoms of Yahoo’s maladies, it does very little long term.Oh sure, “focus on core business” sounds like a great long term plan. But it is just platitude and really just a euphemism for “layoff employees to reduce cost.”Of course if Yahoo is going to reject MSFT, then they will certainly have to make some tactical moves like the ones mentioned above. One can only hope that their leadership can find a way to make tactical adjustments that actually address their problems and don’t weaken them further in the future. What’s the point of boosting the share price only to watch it shrink away again?

    1. fredwilson

      if you can’t boost the stock price, you can’t stay independent in the face of a $31 bid. so they have to do that or they have no choice to accept the deal.that said, i completely agree with you. they need a long term plan, not just a short term plan.i think yahoo needs to shrink first to let it grow later. the “peanut butter” memo was spot on.they need to pick their spots and not try to be everything to everyone. the portal model is dead or dying.fred

  4. stone

    Fred,I think the idea of outsourcing search to Google is very shortsighted and, frankly, makes very little sense. Here’s why: Yahoo will be able to save some money but will be hamstrung in a very important area called 3rd party distribution. By taking Google AdWords, Yahoo would not have a compelling reason for publishers to work with them. Bundling search, contextual and graphical ads (sold in any number of ways) is the primary way that Google grows today, and is the reason why Yahoo has been getting killed (they have wrong products or poor monetization). Yahoo hopes to fix this with their recent acquisitions of Blue Lithium and Right Media. They will bundle these services with search. If they were partnered with Google these deals become impossible. I happen to be smack in the middle of this stuff since 1999 and have personally cut some of the largest deals in the space.If you’d like tangible proof that I am right you need only look at Ask.com. Can anyone name a significant search distribution deal that they’ve cut over the past 3-4 years? Answer: No! It hasn’t happened and never will. Why? Because they do not control their own monetization. Their CEO just lost his job. Why? Because they haven’t gained a single basis point of market share in years, even after Barry Diller spent $100M on a national marketing campaign.

    1. fredwilson

      stone,is Yahoo! better able to bundle their search monetization with their display or Google’s?If I were a publisher, I’d go to Google unless Yahoo! could offer me something similar.Fred

  5. Chris Neumann

    Fred, how much of these recent postings do you think is influenced by Yahoo being an exit strategy for your investments? Certainly it’s in your personal best interest for them to remain an independent company so that some of your early stage stuff can sell out to them. Not gonna happen with MSFT. The question really is: while I agree with you in general, I wonder how much of your viewpoint is tainted by the outcome possibilities of your investments.?

    1. stone

      I hear a lot of people calling for Yahoo to outsource search to Google but this talk comes largely from people that really don’t understand search/advertising, and the distribution wars that go on behind the scene. MSN, Yahoo and Google are battling to win over customers such as Facebook, MySpace, AOL/Time Warner, eBay, Bebo, etc. Owning and controlling a search engine (with monetization) is a key component of the dealmaking process. Not having control of this will turn Yahoo into a very different company and not one that can grow much outside of their owned and operated domains.

    2. fredwilson

      ChrisI think Marc Andreessen nailed it with this blog posthttp://blog.pmarca.com/2008…Sure, I’d like to see Yahoo! remain independent and interested in purchasing our portfolio companies. But we don’t build them to flip them to Yahoo!We build them to be businesses that can exist as sustainable enterprises and exit when and if they choose.fred

  6. stone

    Fred,If Yahoo was forced to “resell” Google they would be at a terrible disadvantage against Google. Ask.com uses Google’s monetization, and has a theoretical right to “resell’ it, but in reality they’re never successful because Google always undercuts them. Yahoo needs to fight against Google with solid monetization (in search) and unique, customer-centric features. They need to add this to their prowess in display and fight the good fight with a solid bundle of products/services.If they take your advice they would have to completely recast the company by going to Wall Street and saying “we’re a different company”. We will no longer battle it out with Google and MSN for publishers. We’re going in a new direction. This will effect our growth trajectory, our valuation, our headcount needs/requirements, etc., and let the market decide what their new price per share really is. It will, in fact, be much lower. They might have a play as a display rep firm. This will bring slower growth and lower margins but could keep them growing by double digits for the next few years. They will never be at the table the next time the game-changers like AOL come up for renewal, but that’s life.So, time will tell which way they go. I will be anxious to see which direction they take. As someone that has competed head-on with them over the years (until our sale in 2007) I can tell you that they’ve grown very soft.It’s fun stuff to watch.

    1. fredwilson

      It seems like AOL’s Platform A strategy is working pretty well and theyoutsource search to googlefred

  7. stone

    Platform A has been formed. It’s not fair to say that it’s working well because there’s no data to support such a claim. Their recent quarter is inconclusive at best. Time will tell if they’re able to execute (beyond monetizing their own inventory) and win lots of new publisher distribution. Also, everything changes when DoubleClick and Google close their deal. The Google/DoubleClick combination will be significant. No one can predict the affect it will have on the market. I can tell you one thing: I would not want to have to beat them in a head to head business development deal process *after* they close on their DoubleClick deal. Their weapons are too powerful and numerous. There will be a few deals, here and there, that will go AOL’s way. They may win business from companies that have unique needs — possibly from publishers with unique data or audience, or from those that don’t have any real search traffic.Keep perspective, though. The market opportunities we’re good enough to make Tacoda successful but may not be big enough to sustain Yahoo’s valuation/trajectory if they don’t control their own search product. They will be relegated to going after smallish opportunities that won’t move the needle enough to make Yahoo and exciting growth company.

    1. fredwilson

      Platform A is a lot more than TACODA. I think ad.com has been incrediblysuccessful in spite of the huge advantages that the large portals have had.fred

      1. stone

        Yes, largely by being a specialist and making a market around unsold or undersold inventory and *before* Google, MSN and Yahoo got serious about selling graphical on websites they don’t own or control. Now that they all have designs on this market ad.com will be under assault. They will continue to work with as many publishers as they can but many large publishers will sign these billion-dollar ++++ deals that include Search, Graphical, Unsold (going to the DoubleClick Exchange, Right Media or adECN, etc. Tacoda will work with sites that believe they can get further CPM lift from leveraging data. AOL will lose lots of large deals like eBay and MySpace because both have large #’s of search queries.Look, I respect your intellect on this matter but I’m talking about growth that justifies multi-billion dollar market caps over an extended period of time. The big deals move the needle for the big companies. Not having Search makes it very hard to grow share. Again, ASK.com hasn’t grown a single basis point of market share. They are the model should Yahoo outsoruce search.

        1. fredwilson

          If you are right its game over because nobody can or will out monetize google on searchFred

  8. S. Hall

    The only real out for Yahoo is going to innovation in search. There hasn’t been innovation in the entire industry for about 5 years, but this is the same reason Yahoo is where it’s at. Everyone that left Yahoo to switch to Google in the early 2000s is now still with Google. The only good innovation I have seen is ManagedQ, a Palo Alto based startup that is developing a search application using NLP to leverage Google results. Yahoo would need a plan as you mention, but it would require this ManagedQ level innovation on their search platform – everything else inevitably leads to acquisition/failure.

  9. Jim

    As someone who has hung onto a Yahoo email account, I can report that Yahoo seems to be having major problems delivering ads these days, which is something I’d think they can’t afford to mess up. I’ve seen lots of banner ads that are either blank or link to Yahoo error pages. I wonder how widespread this problem is? I’ve seen it a lot over the past few months. This seems like something that could have a direct effect on the bottom line.