Microsoft and Yahoo may be in talks again on some sort of advertising partnership, or babysteps to an inevitable acquisition of Yahoo by Microsoft, as the rumor mill focuses on the two companies as a prelude to this week’s earnings reports.
According to an exclusive from Kara Swisher of All Things D, Microsoft CEO Steve Ballmer and new Yahoo CEO Carol Bartz had a face to face meeting to discuss the two companies working together on search and also advertising partnerships. The face to face meetup was the pinnacle of several recent meetings between the two companies recently, which were wide ranging according to Swisher.
The meetings however, were not specifically about another Microsoft bid to acquire Yahoo, but more so the option of the two companies working together. Ironic as it may seem, when Microsoft made its attempt to acquire Yahoo last year, Yahoo ended up meeting with Google and embarked on the limited testing of a Yahoo-Google advertising partnership, which ultimately failed in light of anti-trust warnings (the deal would have given Google AdWords a massive monopoly on sponsored search advertising).
What do I think about these meetings? I believe that all good partnerships and relationships begin with babysteps and collaboration. And very unlike one year ago where Ballmer’s Microsoft took an aggressive approach at acquiring Yahoo in order to compete with Google, now it seems that Ballmer has settled down a bit and is taking a more constructive approach to doing business with Yahoo, the enemy of his enemy in Palo Alto.
Microsoft’s Year Long Courting of Yahoo
It’s been over a year since Microsoft first sent ripples in the search and Internet market by proposing a buyout of Yahoo last February for a whooping sum of $44.6 billion.
At the time, Yahoo was on a downward spiral, with new CEO Jerry Yang at the helm and following a couple of years of wild growth, confusion, overspending and indecision. Microsoft proposed a letter to Yahoo’s Board, referencing Google’s dominance of the online advertising market, deemed it necessary to combine forces with Yahoo.
While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers.
One week afterwards, Yahoo officially rejected the Microsoft bid, with the Yahoo Board believing that the $31 per share bid undervalued Yahoo as one of the 3 major search players.
Ultimately in May 2008, Microsoft cancelled their acquisition bid, but not their ultimate desire to work with Yahoo or one day, try acquisition again :
“We continue to believe that our proposed acquisition made sense for Microsoft, Yahoo! and the market as a whole. Our goal in pursuing a combination with Yahoo! was to provide greater choice and innovation in the marketplace and create real value for our respective stockholders and employees,” said Steve Ballmer, chief executive officer of Microsoft.
“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo! do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal.”