Sunday, August 16, 2009
I disagree somewhat with Hal Varian's (Google's Chief Economist) criticism of the theory that combining Yahoo and Microsoft in search will lead to improvements based on scale, data, etc.
Statistically, for sure, scale is already high enough that more won't apparently lead to significant improvements in either search performance or ad program performance due to the impact of data on improving relevancy. That's on paper, in the lab.
Off paper, in the real world lab:
I believe that Varian's assumption is mainly wrong because he's giving his competitors credit for having more consistent share across all major segments than they actually do. Aggregate numbers look impressive, but the information is less consistent as you drill down. Doubling or tripling the available information in any given segment, especially small ones, is bound to be helpful.
- Yahoo's reported 20% share is fiction. Globally, it's much lower. In the US, the real number is actually lower.
- Data is highly granular in a number of ways. So to start, Yahoo and Microsoft have different search shares in every language and every country in the world, and different search shares in sub-regions of the world. In many, one or the other currently hold share of 1% or less. By bringing both up well over 1% and closer to say, 3%, you get a significant increase in useful data.
- Even the tools that Microsoft provides for advertisers will improve markedly with a doubling or tripling of available data across all major markets, because usable data also comes in the form of highly granular data about keywords. Google doesn't have every last useful tool for researching keyword and consumer behavior: Microsoft has and will develop some really useful ones. Currently, as an advertiser trying to use the tools, you get "insufficient data".
- And though this may stray somewhat from the subject of how to improve a search engine's relevancy... what about something super real-world and practical: running an ad rotation test for a group of keywords and trying to select a winning ad from a field of eight? Isn't that search marketing? Right now, no one is testing very much on any platform other than Google. I suspect they'll be more likely to try tests specific to the Microhoo audience now, rather than just porting all of their consumer feedback driven campaigns over to the Yahoo and Microsoft platforms. The current way is just guessing: really testing in the actual auction you're buying the media in, is more precise.
- By "now," of course I mean when the Microsoft-Yahoo platform consolidation is complete in around a year's time.
To double predictive accuracy, Varian suggests you need "four times as big a sample". Well depending on whether you're looking at it from the standpoint of Microsoft or Yahoo for any given teeny tiny segment, the number of instances where one of them now has "four times as big a sample" is going to be very high. Doubling predictive accuracy on teeny tiny segments - either as a search advertiser or a researcher looking into search trends - is our bread and butter out here. We'll take the "bogus" scale of the Microhoo deal any day.
P.S. I loved Varian's other insights, including the interesting note on the emergence of the "micro-multinational" type of growth company. Though I might have to take a run, at some point, at the recurring Google theme about "communication costs basically going to zero." The costs for collaborative tools have gone close to zero. But...
Labels: google, hal varian, microhoo, microsoft, yahoo
Wednesday, July 29, 2009
Today's 10-year alliance between Microsoft and Yahoo to combine forces on search and search advertising - mostly, having Microsoft supply Yahoo with search and ad platform - is a deal I've supported over the past couple of years (examples, here and here).
At the end of the day the deal is pragmatic. Many third parties have seen the advantages of scale in a Google-dominated world. One strong competitor is, in this world, more competitive than multiple ineffectual competitors.
The fact that it finally moved ahead and got done swiftly once things were back in discussions says a lot about the Level 5 leadership of a Carol Bartz: submerging the ego to move on with business. Nothing personal.
That is how we advertisers have felt. We know the power of the search ad platforms, and we know they'll work better for us with two main ones to deal with, not three. It isn't too much more complicated than that!
It's also better for automation vendors who have to work through the API's, I imagine.
One wrinkle is that Microsoft seemingly ended its bid to create a full analytics platform (Gatineau). Will this be revived? Will everyone just keep using GA? We'll post more on detailed marketing questions as we learn more.
Sunday, July 13, 2008
Just a summer-vacationy thought off the top of the head as to why Yahoo might reject Microsoft's offer to buy only its core search business for a relatively trifling sum: because that's about as friendly and helpful to Yahoo as an ice pick in the spleen?
Wednesday, June 04, 2008
This analysis from Rob Hof suggests that Yahoo CEO Jerry Yang's resistance to a deal with Microsoft is not based on deep-seated hatred of the Redmond behemoth, but rather is based on sound reasoning about risks. Such risks include two companies of immense magnitude being hung up and hamstrung by regulatory hurdles, which may result in all or part of the deal being quashed.
Beyond that indication, and some quotes from former associates telling us that Yang is a level-headed fellow, however, we don't get any reports of a clear vision. Bulletin: when it comes to Yahoo, we may never get that report. The "vision thing" seems to elude the company; not really shocking given the amount of time Terry Semel was left running it.
Make no mistake: it's a pivotal time for these two companies. Yahoo's current process of identifying and deepening its strengths in content, web 2.0 apps and contextual media is perfectly sane, and in keeping with its long-time diversity of strengths (the peanut butter thing). But the tea leaves seem to now read that Yahoo is strongly considering an exit from search, or at least a downshift towards letting Microsoft or Google run more of that show.
The end result (partnerships, stakes, cobrands, and no clear resolution or merger) points towards Yahoo continuing to be a vibrant, uneven, diversified powerhouse that some people (shareholders and smart-aleck execs, but not so much users) think of as a big mess. That would be completely in keeping with its history.
The question then becomes, what's Microsoft's vision? Are they really crazy enough to think they can be a strong #2 in search, and other things Google is dominating right now? Will Steve Ballmer turn purple in the face trying to achieve it with only a small piece of Yahoo to work with? Stay tuned.
Tuesday, June 03, 2008
In the midst of some of the Microhoo takeover bid turmoil several weeks back, an industry friend scoffed at what he called Jerry Yang's "sophomoric" handling of the situation. "Now hold on a minute," I thought to myself. Yahoo had every good reason to do what it could to argue for its future as a strong, independent brand rather than just rolling over in the face of Ballmer bluster.
But recent news syncs up with the specific point my friend was likely making. It was particularly that stunt with agreeing to the experimental ad listings outsourcing deal with Google that looked juvenile to him. Indeed, now that we can see evidence of the reasoned arguments Yahoo management had made against just such a deal only weeks before, it now really looks like a petulant move intended as a snub to Microsoft - cutting off one's nose to spite one's face. Not the kind of move that does justice to shareholders, or thousands of employees who assumed that management was sincere in trying to compete against Google's offerings, rather than going for a short-term revenue bump. Sophomoric, indeed. Or as "mystified" Rupert Murdoch put it: "Jerry Yang is a friend, but he only owns 5%."
Sunday, May 04, 2008
The following is just my take today. Others in my company, and me last week or a week from now, might feel differently.
In the wake of Microsoft withdrawing its offer, we're still left with no resolution on the matter. And that is what is most troubling about the charade we've just witnessed. Microsoft has not stated any intention to pursue a proxy fight. Logically, that probably means they're just playing it out in an attempt to get a better price, by hoping Yahoo will founder and need a rescue operation.
I'm not sure if I'm more annoyed by Yahoo not taking the significantly sweetened offer, or by Microsoft's high-profile approach to the prospect of combining the two businesses. This time around, it was a formal offer intended to generate all of the shareholder and media response that it did. The fact that it led to nothing suggests that it was a low-probability deal in the first place. Yahoo increased its counteroffer price so much because management didn't want to work with Ballmer and his colleagues; didn't want to be swallowed up by that enemy, in particular. The previous attempt to discuss the idea behind the scenes was probably the better way to go, but Microsoft knew that if it chose the polite route, the answer would always be no.
This morning, seeing the news, I went in search of analysis beyond the cursory regurgitations that we see on so many blogs. I figured, hey, I'm not going to stick my neck out and say "what a mess" on such a nice weekend morning, unless someone else does.
Thankfully Danny Sullivan is on fire today.
With respect, Danny reminds Microsoft that is has "no brand in search. It literally has no brand."
That, of course, is why it bid on a company that has a pretty good brand.
We're in the same place as we were a month ago, roughly. Microsoft still needs Yahoo; Yahoo doesn't really need Microsoft. Yahoo shareholders will nonetheless probably say yes to a deal if the price is high enough.
Here is where we get into a potentially long, dragged-out process. Microsoft lurking as a familiar, sinister force, hoping its acquisition target weakens further to increase the chances of shareholders agreeing to a buyout for the original offer price, or a dollar more.
If anything, though, this process has made Yahoo less likely to weaken. It will increase the company's resolve to innovate and to build its brand. Rebounding from a period of weakened morale, employees in various operating units will work harder, work smarter, work together towards tangible financial and audience-building results. Those who do not will be easier to identify, and top management will not even need an unusual degree of perspicacity or ruthlessness to cut loose the underperformers.
That all sounds good. In a normal world, that would be good. The #2 player finds its feet and moves forward. Unfortunately all that does is cause another impasse if the acquiring company returns with a hostile offer. The two sides will continue to be at least as far apart in their assessment of the value of Yahoo. Knowing how this scenario played out in the Oracle-Peoplesoft case, Ballmer already knows this. And knows that shareholders will eventually relent.
The scenario from there would be less than perfect, because a delayed hostile takeover takes on messy proportions once consummated. And the delay would probably be very long, and very costly on several measures. We have no reason to doubt that the Yahoo board will consider every form of legal poison pill clause to deter Microsoft and its own shareholders from doing a deal.
Yahoo's age and high level of institutional ownership certainly makes it more vulnerable than it otherwise would be. As autocratic as a dual-class share structure makes a company, they wouldn't be in the mess they are today if they had one.
Take comfort in this much, Yahoos. At least the Zapata Fish Oil Corporation hasn't bid on you.
Thursday, April 24, 2008
I chatted with some tech industry folk in Canada today and sifting through our posts here, they were confused as to whether I was for or against the Microhoo merger. To sum up, personally I have stated on a few occasions that from the standpoint of search advertisers (as practitioners), consolidation will be helpful if it happens, because it makes it easier to buy, promises better data and better overall product in the #2 player (eventually).
But as for precise buyout, merger, and integration scenarios, who knows, right? I remember being proud of calling Google-YouTube right, sort of. A lot of people critiqued the idea of the deal, and I thought it made sense. However, I thought Google might "buy it to kill it," and fold YouTube into Google video. Hey, small detail.
Anyway, I'm getting more interested in one of the low-probability scenarios outlined by Mona in this week's SEL column. Here's an even more precise version. Microsoft does the takeover, but with a side agreement with News Corp. in hand (that Yahoo also agrees with, on a high level handshake). Microsoft would identify the search, ad interface, display ad platform, network, tools, and other core portal & search assets that it wanted to consolidate. News Corp. would then inherit a significant number of content properties, at a healthy premium, in a flip from Microhoo.
News Corp's involvement would allow Microsoft to sweeten its offer by a couple of dollars, thus making it palatable to the Yahoo board.
Of course News Corp would need some assurances that its involvement would lead to wins for itself - presumably guarantees of advertiser dollars or something else.
Anyway, that's as pro-merger as I get. It makes sense on the search and search ads side, and with a savvy strategy to offload some of the content bulk to another organization, it gets more digestible.
Saturday, March 22, 2008
Yahoo has a lot of substance to it with all kinds of substantial products and services across the globe. Call it peanut butter or call it honey, but you have to admit, a lot of it is pretty sweet (or sticky, or both).
That's why Yahoo's chiefs don't want Microsoft to acquire them. They don't want all that Yahoo to just disappear.
There are only a couple of credible ways out of this. One way is to convince its board and the suing shareholders that a combination of a radical transformation in the world of search - some elements of which Yahoo's scientists are all over - plus the familiar consumer orientation that companies like Yahoo have already proven they have in spades - could result in an increasingly vibrant second-place-to-Google entity. Not a mere also-ran, but an also-favorite just a few percentage points back in the pack.
But there's a few elements missing. Microsoft has those elements, but they come attached to a giant steamroller. There are a couple of credible alternatives, no more.
My formula for Yahoo wriggling out of the clutches of the behemoth? That's a bit of a geek-fest, and at times it's going to seem kind of old school to new readers of the blog. So instead I'll send it out to the Traffick newsletter subscriber list (hey, I said this was old school). The newsletter is still free :). If you're not on the list, you can sign up (see signup box at right). Don't worry, I won't pound you with an autoresponder. I send out a little missive to this list every 2-3 months.
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