This is the soap opera drama that won’t go away. Every time you think you’ve heard the last of it, it comes back again

The latest is a WSJ report just out that says Microsoft is trying to rope in big media partners like News Corp and Time Warner to make another bid for Yahoo!

Apparently Microsoft wants the search business badly and can’t stomache losing it to Google. That makes sense

It seems they are less in love with the other parts of Yahoo! and are exploring some kind of ‘carving up’ of Yahoo! with other big media companies

This conjures up images of the wounded animal being devoured by a pack of wild animals

It also is very much the result of Google’s market power. Somehow a breakup of Yahoo! is seen by these ‘wild animals’ as the way to balance the market and make it easier to compete with Google

I don’t see that happening but I do see Yahoo! going away at this point

I’ve wanted Yahoo! to stay independent and restructure and be relevant again

But it sure feels like that’s not going to happen. Wall street has spoken with its trading of YHOO below $20 yesterday and if Microsoft is back at the table with a bigger pile of money, then its probably the time for the end game

Its a shame for Yahoo! and I suspect that Microsoft and its partners (if they play ball) will not get much out of this whole mess.

But the writing sure does seem like its on the wall for Yahoo! now

#VC & Technology

Comments (Archived):

  1. edythe

    oh, no, fred. you were on our side…

    1. fredwilson

      I still amBut this is called reading the tea leavesI sure hope I am reading them wrong

  2. Randy

    I was going to bring up the analog of my beloved family cat eating a rabid squirrel some 35 years ago (still hurts, it does). 🙂 But your observation […Microsoft and its partners (if they play ball) will not get much out of this whole mess…] much more apropos. As usual, one line says it all.

  3. NinoT

    I think breaking up Yahoo into many small pieces could be the overall best result.If you think about it, there is very little correlation between the hundreds of different Yahoo! “products”. From a consumer standpoint, the only advantage a combined Yahoo! gives me is one login. Hopefully this will become less important in the near future if/when OpenID takes off.There is also no evidence that shows having so many different properties under one big umbrella fosters creativity. In fact, some of the best advances is coming from small, independant startups. The individual properties within Yahoo! may flourish once they break away.Finally, if you ask the Yahoo! employees, I’m sure many of them would prefer this option over morking for Microsoft

    1. fredwilson

      That’s been my suggested approach to this crisis since the very beginningbut I’ve heard from many that this isn’t as attractive as it seems to me

  4. stone

    Fred,I think you’re right. I’ve been consistent about this issue: Microsoft will buy Yahoo. It’s just a matter of price. Sue Decker has failed, Jerry hasn’t helped either. Their true stock price is around $20/share. They haven’t created a drop of shareholder value in several years. That’s a fact.

  5. thomasl824

    There is still the Proxy Vote for August 1. What if Icahn wins? YHOO is surrounded but why the others want them is beyond me.

  6. Paul Marshall

    My opinion: I really believe this deal will get done, just a matter of when and how much. MSFT wants this. Even with Yahoo MSFT is still a long ways away from challenging Google but without it they aren’t even in the same game.

  7. khawk

    Fred – I’ve supported your views on Yahoo since the beginning. I think MSFT lost the search game to GOOG a long time ago. It is no longer about search for Google. It is about information – and information is everything. It is economics: information as currency. It is philosophy: information as objectivity. It is political: privacy/copyright. MSFT still thinks they can catch up to Google via search by aquiring Yahoo. I believe that search is no longer the issue. The Google search machine simple hums in the background. Forever running. It is the Matrix of human bodies providing an endless supply of power to the machine. It is now a given, a basic assumption in all things Google. It is a simple axiom – a law of nature on which other things are built. GOOG is discovering relativity — MSFT is still trying to explain gravity.

  8. Will

    FredI think there is more value in this deal then people expect. If yahoo and msft can successfully leverage their access to media with a third parities (MySpace) user base, it would significantly alter the web experience. The top reason among other why yahoo & msft failed is because they are fighting for the same demographic while Google is selfishly holding on to their market.I remember months back when you posted a diagram of the respective demographics for Google vs. yahoo users. It has stuck in my mind for weeks as this yahoo v msft deal was going on. Then all of a sudden it all clicked. When I go to yahoo I want to be given news headline and sport updates. When I go Google, I’m looking for something specific. Where did msft fit into that mix?I imagine an average Google user is often an affluent or highly educated person who is search for a new journal article on scholar or writing a paper on Google docs. Whereas an average user on yahoo is a 12-20 year old looking at the latest gossip headlines, or the 23-40 something blue collar guy look at sport scores. The same demographics can be said for MySpace vs. face book.I agree that they won’t beat Google at being Google, but this new deal (with the right secondary partner) could be damaging if done correctly. All three companies MSN, Yahoo, and MySpace appeal to the same cliental, if you were to combine them and streamline cost redundancies; it would be a formidable opponent to Google.

  9. ceonyc

    Where are the big media/tech private equity firms here? Quadrangle? Elevation? Silver Lake? How come they’re all on the sidelines? I guess they think they can’t outbid MSFT so why bother.

  10. Charlie Crystle

    They need to just get the purchase over with, and worry about the details after. Break it up, ALONG with parts of Microsoft. Microsoft stunts its own growth. They have a ton of smart people, innovation, and powerful channels, but can’t get the innovation to the channels. It’s time to split that sucker up and make the individual parts successful through autonomy.

    1. Paul Marshall

      Spinning off some pieces (like Flickr) through sale or individual IPO with independant management would be worth considering as well.

      1. Chris Dodge

        There’s absolutely no demand IPO market for a Flickr-like offering these days. Definately a sale, but to whom and how much?!?

        1. Paul Marshall

          True enough on the IPO front for the next while but based on the strong community, user group and loyalty associated with Flickr I would think there would be some large private equity players that would be interested in taking them private.My point was not specific to Flickr but more generically that I think the sum of the parts may be worth more than the whole at this point.

          1. fredwilson

            Me too

  11. Alex Iskold

    I think that Microsoft is too focused on search. There are other ways to serve advertising on the web. They are really after advertising not search, just blinded by it. I wrote more on this in my upcoming post on Powerset acquisition, I will add a link once it is up on ReadWriteWeb.

    1. loupaglia

      I agree Alex that Microsoft is way too focused on search. I’ve commented several times saying such. Yes, it is a huge market but Microsoft simply doesn’t need to play in every big market. With their market cap, they can make a lot of big bets but I’d love see some focus coming from Redmond, not everything technology

  12. loupaglia

    Fred: I know you’ve always believed in the outsource of search to Google but this is something I just did not agree with. They just completed Panama and are the #2 search player, it that is not a serious opportunity, I do not what is. I could completely buy in if Yahoo! came out and said we are the number one media play on the Internet and we can continue to build value for our shareholders.But for some reason, and much of it is tied to shareholder pressure, Yahoo! has acted like they’ve lost the race and do not have a long term strategy on continue to drive their business. It is this stigma that has me really in the camp of agreeing with you post today.

  13. James

    Microsoft (search/ad tech) + Yahoo (Media/Display) + Facebook (Social Platform) = Real Competitive Threat to Google

    1. fredwilson

      If you believe anyone could operate all those assets under one roof intelligently and efficientlyI don’t believe that

      1. Greg Solovyev

        I agree, breaking it up while keeping making the pieces communicate and cooperate with each other, as well as compete will be more efficient. Huge internet companies seem to be way too inefficient for this marketplace.

  14. Greg Solovyev

    Also, Zoho has shown that it can take both Yahoo.com login and Google.com login without being a part of either one.

  15. gregorylent

    couple of days later … i think yahoo is going to survive .. a lean mean innovation machine within the year … relatively speaking