A short while ago, Chris Winfield of 10e20 called my attention to a story published by Henry Blodget on Silicon Alley Insider. In the article, Blodget covers a possible partnership between Yahoo and AOL / Time Warner, and argues that such a partnership would help extract a higher bid from search rival Microsoft.
Since Microsoft’s first hostile bid, Yahoo has remained defensive in it’s position by holding true to their beliefs and perceived market value. Earlier today, as Loren Baker covered here on Search Engine Journal, Yahoo and Google came to an agreement to test Google AdWords in Yahoo Search Results. In another article from SVI, Blodget defends his position that the Google and Yahoo pairing does in fact strengthen Yahoo’s position:
This search test won’t block a Microsoft deal, and neither would a full-blown Yahoo-Google search partnership. But if the test works well, it will bolster Yahoo’s argument that Yahoo worth considerably more than Microsoft’s current bid, by holding out the promise of increased revenue and reduced cost from a full-blown outsourcing deal (analysts estimate that the benefits to Yahoo could be as much as $300-$500 of incremental EBITDA). And Yahoo has already lost the search game anyway, so such a partnership offers little risk to Yahoo.
The Wall Street Journal has covered this developing story as well, offering the following details of the possible agreement:
Under the terms being discussed, Time Warner would fold its AOL unit into Yahoo and make a cash investment in return for about 20% of the combined entity, the people said. The deal, which wouldn’t include AOL’s dial-up access business, would value AOL at about $10 billion. As part of the deal, Yahoo would use the Time Warner cash and additional funds to buy back several billion dollars worth of its own stock at a price somewhere in the middle of the range between $30 and $40 a share, the people said. Any deal would be taken to Yahoo shareholders for approval…
The important thing here to realize is that Yahoo is firmly in control of the situation. When Microsoft attempted to deliver an ultimatum to Yahoo, Yahoo responded sharply, as MarketWatch covers:
…Yahoo CEO Jerry Yang and Chairman Roy Bostock essentially accused Ballmer of lying and recklessness by firing back that the Microsoft CEO’s letter “mischaracterizes the nature” of their discussions and by blasting his threat of a proxy battle as “counterproductive.”
I cannot help but think that we are witnessing the ultimate search industry poker game, with each of the big three with their cards held close to their vests. The inclusion of AOL and Time Warner is an interesting one, and to me shows that Yahoo! may still retain more control of the situation than we may be lead to believe. Ultimately though, there’s nothing aside from rumors at the time to report.
As a developing story, I would certainly call attention to other coverage on this from industry insiders Barry Schwartz and Danny Sullivan. Barry chronicled details on the Yahoo and AOL agreement on Search Engine Land, while Danny posted some quick comments via Twitter. To paraphrase, Danny indicated that Google could certainly leverage this opportunity to learn more about the monetization of Yahoo’s search traffic — a topic that came as a product of speaking with Google’s own Marissa Mayer.
Stay tuned as myself and others from Search Engine Journal continue to cover these developing stories.