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Friday, February 01, 2008

Microsoft + Yahoo: The Deal Everybody Says They Saw Coming

Microsoft has offered to take over Yahoo again, a year after being quietly rebuffed. This time around, the very public offer comes in a context of swirling turmoil around the big Y!.

Of course, most pundits saw this deal coming, or at least have figured they have known what Yahoo should do next. We're all so smart! I've personally been telling Yahoo what to do for years. The advice changes from year to year.

My most recent attempts (the open letter to Jerry Yang, and followup) to advise the big Y! brought up the M-word, advising a partnership with Microsoft in search advertising and search generally, did not go so far as to advocate a merger (as some did). I think I just assumed Yahoo was strong enough not to need to merge entirely, and there are issues of cultural fit between Y and M. However, in a context of an unraveling financial picture and the imminent loss of (even more) Yahoos through departures and job cuts, suddenly, niceties like "fit" seem less germane.

Last night, a group of us Toronto-based search marketing folks had another informal social gathering. There was considerable talk about Google's power, but other than this, mostly small talk. The flipside of "what can competitors and players in the ecosystem do to survive in the context of Google's dominance" got lost in anecdotes about road rage and Caribbean vacations. But what should have been the next logical topic for discussion would have been to inquire if there was anything Microsoft might do in this regard. That hasn't been a common theme among the technorati, because many have spent years trashing Microsoft's products - and hoping for better.

My knee-jerk response so far to reports of this deal is, at first, "holy crap," quickly followed by the obligatory "yeah, I thought so," and then, "well, they don't have to accept the offer."

If the deal does go through, one clear wish will likely come true: no need to plumb the depths of two competing ad platforms to Google's. Yahoo can keep Panama, and borrow all kinds of little Microsoft innovations and advantages to build into the next version of the platform (such as MSN adLabs tools, demographic bid boosting, a robust new analytics platform that will give Google Analytics a run for its money, etc.). That, and the opportunity to buy more ads, more quickly, for less money, and with less overhead costs for the ad platform providers, is pretty much a win for all concerned; it's the kind of consolidation that makes (check that -- would make) sense, even if also there is some sadness and some potential disadvantages to subtracting players from the competitive landscape in search and online advertising.

On a concluding note, before I get back to the mundane details of the day, I'd like to thank Steve Ballmer for making this Friday a little more interesting for all!

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