Yahoo's dark day
Posted
Jun 13 2008, 12:41 PM
by
Kim Peterson
Rating:
Any way you look at it, yesterday was a dark day for Yahoo. The stock crumbled 10% after the company confirmed a Microsoft deal was dead. Three key Yahoos announced they were leaving, adding to the ongoing employee exodus. Yahoo announced an advertising sales deal with Google, but it wasn't significant enough to sway angry shareholders. The company's stock isn't faring any better today -- down 6% on heavy volume to $22.14 at 11 a.m. PST.
We won't see the full implications of Yahoo's moves for a while. Clearly, Yahoo needed breathing room, and outsourcing some search business to Google accomplishes that. Yahoo gets Microsoft and Carl Icahn off its back and can figure out a new strategy -- and it gets a new source of short-term revenue. But Yahoo has let Google in the front door, and now risks the possibility that Google takes its customers and sneaks out the back door.
Google and Microsoft shares are up about 3%. Analysts and pundits have had some time to digest the drama, and today they're all over the board on whether Yahoo is smart or insane.
Henry Blodget thinks Yahoo scored. Yahoo's search days may be limited, if its market share continues to decline, he writes. "In the years that its search business has left, Yahoo can now focus almost all of its efforts on revitalizing its properties and display business, which is where its future lies."
Some think Google emerges as the ultimate winner, especially if it can get new customers out of the deal. Yes, Yahoo will get a short-term financial windfall, but it may lose its "must-buy" status with advertisers, said Derek Brown at Cantor Fitzgerald. "After all, doesn't this deal make Google, not Yahoo!, the 'must-buy' for online advertisers?" he writes.
Stifel Nicolaus analyst Blair Levin wonders if the ad deal will ultimately cause advertisers to jump ship for Google, "leaving Yahoo without a viable search advertising product and Google as the only search advertising game in town."
Om Malik thinks Yahoo has made a critical blunder and has lost its way. Antitrust officials will surely be investigating the Google deal, ensuring that Yahoo is distracted and muzzled for some time. Yahoo's best hope, he said, is that someone buys it. "The sad part of this whole thing is that Yahoo was once a great company that had great products, and that made news by launching great products. [CEO] Jerry Yang was once Silicon Valley’s wonderboys, and now he is helping his ship run aground."
Michael Arrington at TechCrunch says Yahoo has destroyed its business. "The delicate power balance among the big players was disrupted today in a big way," he writes, "and the consequences will be felt over the coming months and years. We needed a competitive market in search to ensure the health of the Internet. Now, it’s nearly impossible to see how that can happen."
Disclosures: I don't own shares of any companies mentioned in this post. And while Microsoft owns this blog, Microsoft does not control, censor or otherwise have any editorial influence over what I write.
Related reading:
Yahoo says no to Microsoft
Microsoft + Yahoo: It's all about the GOOG
Google jumps into Microsoft-Yahoo soap opera
Yahoo's good, but not spectacular, quarter
