Tuesday, April 14, 2009
A couple of interesting interventions over the past week from the Wall Street analyst community, no doubt weighing heavily on decisions forthcoming from the major search engine companies.
Today's talk is of number-crunching by Jefferies analyst Youssef Squali that points to a potential $1 billion saving that could be realized if Yahoo outsourced search to Microsoft. Any partnership scenario would have significant and positive financial outcomes for the two companies, it seems.
Prior to that we had Credit Suisse's view that Google's YouTube division currently loses over $400 million a year. Turning on the monetization spigot isn't something that can happen overnight, and that gap's just a bit too wide to gradually make up over several years, especially given the harder sell facing most ad formats in an economic downturn. So there, we can expect major changes.
It's been fashionable to say Wall Street doesn't dictate how the search engines are run. But certainly, by bringing these numbers to light and forcing them onto the agenda -- without prompting from the companies being analyzed, and no doubt out of step with those companies' wishes to soft-pedal their current inefficiencies -- the investor community is setting itself up as an influencer.
And rightly so. These are public companies. Is it OK for them to waste gobs of banked profits because decisions aren't being made crisply enough? Is it OK for them to expect to gloss over the specific P&L's of specific parts of these companies, as long as they can put a nice sheen on the aggregate results each quarter and year end? It's obvious Wall Street doesn't believe so.
Labels: goog, msft-yhoo
Thursday, April 10, 2008
The problem with the Techmemification of tech news is that you often get your news through the filter of arrogant blowhard bloggers who distort the reality field even more severely than news outlets themselves. Case in point, this Michael Arrington rant on the impending Yahoo business combination scenario. Everyone will read it, and now everyone will start wildly assuming the narrative has to be seen through this lens.
Personally: I don't know what News Corp. is doing or thinking. They aren't a player in search or many of the current types of Internet apps that reside within these giant companies. I don't know or believe that Yahoo is going to roll over and hand their ad management over to Google AdWords. We're getting way ahead of ourselves here. [Edit: The fact that they're going to test Google's product, at this stage, is a punch to the gut for internal morale, if you ask me. Bad strategic move. On this particular point I can't help but agree with a colleague at another SEM firm that the current set of "anything but Microsoft" moves seem knee-jerk and sophomoric.]
Fred Wilson uses his narrative powers for good, at least. The giants are playing around with beloved Internet services like they are toys. To a select few of these bigshots, they're just assets to be bought, sold, traded, combined, and such. The rest of us actually use and rely on them -- the whole reason they wound up profitable in the first place!
Wilson, bless him, actually gives a crap about what might happen to users of AIM. See? There are some real details of user habits and migration to new services that might matter in there. Such details also prove that companies like AOL do have a remaining valuable user base, one that would integrate well into Yahoo, for the right price.
Henry Blodget also points to a number of popular AOL services and brands that might find a pleasant home within Yahoo.
So it's a double shame that wannabe financiers in the blogosphere take the same "bigshot with toys" attitude as some of the bigshots themselves, towards what are actually vitally important services that many people use now, and will want to see improved down the road.
Give Yang and the Yahoos just a shred of credit. Don't you think their concern over those services and their future is even a tiny bit of a motivator in resisting the Microsoft bid?
If you work through the logic of the strengths and potential of all these companies and their users, you might be able to draw your own conclusions, far removed from the fist-pounding bully talk that has unfortunately become a favorite of, not only media company executives, but bloggers cheering them on.
Last week, right up to last night, I worked out my own analysis of the current situation, in between long bouts of actual work -- and most of it came about without the benefit of leaked info about the AOL talks. Reprinted from the Traffick Newsletter, in its entirety, is my take.
'SURGICAL MERGER' WITH AOL COULD HELP YAHOO THWART MICROSOFT BID
By Andrew Goodman, April 10, 2008
In the first part of this story, I attempted to establish the premise that core organic web search is fairly defective today, in spite of the many advances and the various distractions and apparent improvements provided by today’s “blended” search results.
Rich Skrenta, founder of a stealth startup called Blekko, complains that Google “was built to index a web that no longer exists... a web where people still engaged in social linking behavior, for one thing.”
Skrenta believes that the “editorial voice” of a search engine is expressed through its algorithm. As the founder of a famous “scalable” Internet directory that didn’t, in the end, scale, Rich knows his stuff cold. Whatever he’s working on is bound to be more in sync with the web than that PageRank-dominated Google model.
In a related vein, as I pointed out in Part 1, I believe that a company like Yahoo may be able to create more consumer-friendly search by working towards an embrace of open formats and “interoperability” and “participation in a trusted metadata scheme,” but will bias the voice so that a certain “trusted universe” of publishers may be featured, as it were. This is no different in principle than Google hand-picking the (fewer than 10,000) sites that are eligible to appear in Google News, you know.
Essentially, the idea I am raising here is a new, more sophisticated take on “paid inclusion,” hopefully without the paid. But a hefty once-a-year fee per domain ($500) might make sense – it would weed out the silly high-volume spam, and encourage registrants to make the most of their participation in a new ‘publisher environment.’ Break the rules, you get booted. If you’re truly serious about content, you’d no doubt pay the $500 and interact diligently with the custom environment set up by the search engine. That doesn’t mean that no other content would be indexed. You could still “blend” various kinds of results, including the backfill of full web search, paid listings, and so on.
Sure, Google Webmaster Tools are cool… to a point. Sitemaps protocol – useful, but already embraced by more spammers than legitimate publishers. But we think there is more to interoperable publisher-index life than that. And Google at 90% market share would not be healthy for anyone.
Whatever Yahoo is working on, or could work on, they need to figure out how to deal with current reality - the looming Microsoft offer. If they’re committed to the idea that they could come up with consumer-friendly, useful search that actually beats Google’s, how will they do that given that Microsoft has continued to press its near-hostile takeover bid with threats and bluster?
There are three leading scenarios:
(1) Try to go it alone, or (1+!) try to go it alone while enacting poison pill clauses designed to sour Microsoft’s takeover experience and to stick it to Steve Ballmer personally. This scenario seems unlikely or at least unhealthy. It would be a spiteful strategy that would be opposed by most shareholders, and possibly, the legal system. The prospect of a years-long struggle reminiscent of Peoplesoft’s attempt to resist Oracle is frankly nauseating. While it is that type of takeover negotiation history that emboldens Yahoo’s leadership to believe they can exact a higher price from Microsoft, too long a waiting game would sap morale internally and in the ecosystem.
(2) Find a reasonable enough business combination that can help Yahoo gain a bit of scale and market share, and distract shareholders enough to turn down the Microsoft bid in favor of moving forward with this second, less drastic, deal. This would be with an old-fashioned consumer Internet brand like AOL. There has been some chatter about this, such as here: http://blogs.zdnet.com/BTL/?p=7946. Most observers see it as a bad idea. Unless it is done very carefully, I have to reject the idea insofar as there would be far too much chaff mixed in with the wheat at AOL. Yahoo can’t afford to overvalue AOL and then go winnowing out the parts of it that might be useful to Yahoo. This would financially weaken Yahoo and make it less able to move on other priorities. However, if a smartly-constructed "surgical merger" can be put together, I think this alternative might really work. Here's one recent take on the talks taking place with AOL.
(3) That leaves the Microsoft deal. Although anathema to the unspoken “no assholes rule” in place at many companies, Yahoo included, Ballmer and crew bring a strong offer to the table. A combined company looks like a strong company, able to then accomplish further momentum-builders. That might include increasing stakes in Facebook and other emerging social apps and content verticals. It might also include waiting AOL out to buy up any useful parts piecemeal, or making another big offer and then discarding the scrap. Now, the “combined company” starts to look like it might have the muscle to be a real global player on a par with Google.
(3) is still the strongest play for Yahoo unless they and AOL get really creative, and quick. I just hope that in all the commotion, the kernel of the above idea is not lost. Yahoo, to say nothing of feisty secretive startups like Blekko, could still do some cool things to provide a better search experience for consumers, and a more consistent, respectful relationship with publishers. In spite of many great products and the many good deeds they do, in core search, Google has something of a rep now as a “glorified scraper company” with outdated ranking methods. Surely there is room for a viable second-place alternative.
I'm on the edge of my seat here. Aren't you?
Have a good one,
P.S. Yahoo, it's a bad idea to hand over your ad management to Google.
Labels: aol, msft-yhoo
Sunday, April 06, 2008
So my long exploration of a future rosy scenario for Yahoo to stay a strong and beloved second place in the search engine race (remember, they're still #1 or #2 in a fair number of verticals and niches) left part two unfinished.
Part 1 was about search, and the consumer, and how some at Yahoo still "get it" better than just about anyone in the world.
I still haven't dropped the other shoe about exactly what partner might be better than Microsoft to help them build that. In Yang-like fashion, I'll get around to it.
But let's be clear about this much - assuming you already have a grasp on the fact that Google currently has dominance of search to the tune of 60-85% market share, depending on the market. Yahoo is #2 in search. Microsoft is no longer a close third place in most markets. They're a distant, unimpressive third. Especially unimpressive given the investment and resources they've put in thus far. It's tough out there.
So: why does Microsoft want Yahoo so badly? Why is all the current "jawboning" about Yahoo being a weak company lucky to have such an inflated bid not cause Microsoft to waver from its effort to acquire Yahoo?
Because when it comes to search, and anything that looks like search, Microsoft is desperate to buy into what they haven't been able to grow organically. As things stand, they're being squeezed nearly into oblivion, which really doesn't bode well for the company's future. They're looking to make a strong transition into anything scalable with an advertising dollar attached.
An indicator of this avid interest is: if you work in the search advertising industry, you may have had Microsoft people - whether they are directly working for Microsoft, or for a market research firm, PR firm, "agency of record," or some other subtle offshoot - sidle up to you and ask you what it might take to move some of your clients over to Microsoft adCenter. Or begin talking about it more in articles. Or generally mention them, in a slide or two in a seminar. "I mean, after all, we boast the highest ROI of any of the major PPC vendors... right?" And the platform is interesting and innovative, even if the overall ad buying experience has its shortcomings. To the above, agreed. But:
Usually the SEM's answer is something along the lines of: "Look, you've got 10-11% share on paper, and in the real world of searches, sales and leads for any given client, more often than not it's closer to 5%. If this drops to 2%, it's even worse, but even at current levels it's a tough sell. It's not quite on the radar for many clients. And therefore, not for us, as much as we'd like to see more competition and cool bidding features."
The conversation continues from there, and some nice things may be said about good intentions to work together. The eerie thing is, the Microsoft-associated person won't dispute your 5-6% number; maybe not even the impending 2% market share scenario. It's as if they know you're right. They're more self-aware than, say, Ask.com execs were three years ago.
Letting things go in that direction puts a huge crimp in Microsoft's style. To be able to fully and properly represent themselves, their many products and services online, they need some advertising reach and access to search visibility that isn't diabolically controlled by archenemy Google. They need access to the subtle forms of public mindshare that only search and related advertising inventory can provide. (Think that's why they overpaid so much for a 1.6% stake in Facebook? You think?)
So look around at who they can buy to boost that search market share way up. And at the same time, who holds a ton of other targeted ad inventory. There's only one: Yahoo. No one else. Except maybe Facebook, which stake Microsoft might seek to increase at a more favorable valuation than the first.
To achieve this objective, Microsoft has decided it will pay a premium, and I don't see chatter about weakening market conditions, and other claims that Yahoo isn't in a desirable position, as likely to cause them to undecide.
Microsoft's resolve to do a deal seems pretty clear.
The question remains: does Yahoo have any alternative?
Tuesday, February 26, 2008
I'm taking in Danny Sullivan's keynote at SMX West right now.
He's talking about social search and the as-yet-unrealized potential of communities like Facebook to influence search results in deep ways.
Although this will raise privacy issues, it underscores the value of Facebook right now. It's leveled off slightly, maybe, but it hasn't backed off by much. MySpace, on the other hand, seems increasingly like the trailer park of social media.
That means someone's going to want a deeper partnership with Facebook, if not outright acquisition.
The only major search company that has a piece of Facebook, of course, is Microsoft.
To achieve big goals like increasing its stake in Facebook and incorporating data into a better overall experience, Microsoft needs to get other ducks in a row first, including consolidating forces with Yahoo. Hence, the resolve they are showing to push the acquisition through no matter what Yahoo wants. For the record, Danny wound up his keynote by expressing a hope that Yahoo can remain independent.
Labels: facebook, msft-yhoo
Wednesday, February 20, 2008
I'm fresh from moderating a very useful Fundamentals session on "Ad Program Strategies: Compare and Contrast" with Thomas Bindl, Steven Kaufman, and Richard Gregory. After the presentations I polled the audience: "from your standpoint as a marketer using these ad platforms: would you prefer that Yahoo remain an independent company, or that Microsoft and Yahoo merge to form a single #2 vendor in the space?"
The votes in favor of merger ran 7:1 (that's the ratio - actual vote about 21-3 among the subset who bothered to raise their hands).
Users are king, but advertisers pay for all this stuff.
Microsoft already knows the right answer. Yahoo, I hope you do.
Monday, February 04, 2008
So on the heels of news of a war of words between Google and Microsoft (complete with counter-punch)...
It's evident that "what's good for consumers" is trotted out constantly as the justification for big companies' new initiatives, including M&A's or complaints against them. A lot of those platitudes, I agree with. Google, in particular, has been a revolutionary company. But their very might is starting to blind them to their own possible role in creating an arbitrary economy that is increasingly set up to benefit Google first.
Behind in a vertical like email? Worried that your two biggest competitors, if combined, could be "uncompetitively competing" in that vertical? Why should regulators or consumers care? Nothing stops anyone currently from using GMail, and it's unlikely their competitors are going to obliterate the open Internet anytime soon. It would appear that being the leader in online advertising and still feeling like an underdog leads to a complete loss of perspective on the whole evil-not-evil question. Has it just come down to: "if not invented (or assimilated, aggregated, or ripped off) here, it's evil"?
As search engine companies with huge power, companies like Google have made strides towards gaining that worldly perspective, through initiatives in reaching out to the interested community (not only users). They've put together things like the Sitemaps protocol, webmaster tools, and the like. Many of those initiatives would never have happened without goodwill and hard work on the part of identifiable Googlers. And they definitely would never have happened without concerted pressure and cohesive arguments coming from the interested community - in particular, vocal advocates such as Danny Sullivan. Maybe that's the takeaway here. Forgive me for being vocal, but if everyone just shuts up, we tend to be forgotten.
It's that goodwill - that stuff that can only come from individuals and their sense of community, as opposed to an algorithm or a balance sheet - that threatens to be forgotten as these companies grow in size and become more concerned about bashing each other than behaving in civilized fashion.
As consultants, resellers, advocates, authors, and agencies, we feel like no matter how much we try to understand and even advocate complex things like Quality Scores on keywords, we're treated to arbitrariness and large variances in the human interventions that can make or break the not-entirely-automated process. In other words, there is a growing suspicion by agencies and advertisers that a lot of your dealings with Google - especially around questions of website and landing page quality - revolve around how much someone over there likes you. Public releases like the one I commented on here, about "business models that tend to get bad quality scores," do nothing to assuage such concerns. We're left to wonder whether even worse arbitrariness lurks beneath that not-altogether-shiny veneer: whether random likes and dislikes are being invoked to harm particular, identifiable companies.
So it's fair enough to say that consumers have benefited from many of the giants' well-priced services, but it's also the question that a huge middle swath, of suppliers, partners, agencies, and related vendors, out there in the ecosystem, are impacted by the industry giants.
It's like yoo hoo, we're out here too. Remember?
On that front, no one's going to call Microsoft an angel. But what they do have in terms of grassroots reseller relationships and partnerships is decades of experience. If they weren't doing something right, they would have been chased out of all those countries they successfully operate in, years ago.
In response to such concerns - they began to be expressed 3-4 years ago - Google has spent some time building partnerships with agencies and resellers. For example, newly-developing products like Google Analytics and Google Website Optimizer have reseller programs (even though the products are, um, free). Google recommends companies who produce radio ad content. And so on. Relationships are beginning to be forged.
In other areas of course, these companies move to aggressively consolidate verticals, and disintermediate stray dogs in the marketplace. On some of their websites, Google steps beyond just aggregating information, to competing directly with perfectly good content creators (knol's just a recent high-profile example - do you want the full list?). They can use confidential information in many ways, to compete with other large entities in the ecosystem. And the smaller players are little more than an afterthought in some cases. When Google or Yahoo "knock off" someone's third party products, publications, services, etc. - which happens, luckily not all the time - where does that stand on the "freedom and responsibility" meter? Can I get access to that algorithm?
Isolated practices at these giant ("Internet freedom fighting") companies still need work, in other words. We're grateful for the strides they've made - not so crazy about the times when loyal third parties are treated as afterthoughts, or worse, enemies to be crushed. Beyond platitudes about consumer choice, respect for channels seems to be still in the somewhat nascent stages.
If the Big Merger goes through, the online advertising ecosystem will need to band together and chant the lyrics that most memorable hit from Scottish crooners Simple Minds: "Don't You Forget About Me."
Labels: goog, msft-yhoo
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