Will Yahoo! be the Next AOL? A Look at the Suitors – News Corp, Microsoft, and Google

Implications: Yahoo is in a good and a bad position.  The good position is that they have multiple suitors already -- Microsoft, News Corp, and Google (in a way) -- and might get more, driving up the offer price.  The bad news is that they've already seen AOL go down the road of a failed merger with Time Warner, and, if not careful, they could be the next.

Analysis: Does anyone worry about Yahoo going down the same path as AOL? 

 

This is the first thing that came to my mind as I read a blog on one of my favorite sites, TechCrunch.  The author described the closed door talks between News Corp and Yahoo designed to increase the offer from Microsoft’s initial bid of $44.6 billion to $50 billion.  (Of course, rumors are already rampant that Microsoft is readying a $50 billion bid with less strings attached than News Corp’s bid.)  

 

News Corp taking a big chunk of Yahoo sounds like a disaster to me.  It rings of the AOL – Time Warner merger that has widely been considered one of the worst mergers in history.  Though wide ranging, at heart News Corp is a media company, with similar components as Time Warner.  They own or have a major stake in major television and cable properties, especially FOX, BSkyB, and DirecTV, similar to Time Warner’s cable holdings.  They have a huge array of print publications, especially The Wall Street Journal, New York Post, The Times (of London), and so on.  Time Warner has a huge Time magazine portfolio.  And now they are going after Internet properties, such as IGN, Rotten Tomatoes, and MySpace.  MySpace has been on a downward trend since the acquisition.

 

Why does Time Warner and News Corp forebode poorly on Internet company success?  For one, there is a culture clash.  There are hundreds of stories about Time Warner management not understanding or getting along with AOL management, forcing physical and virtual walls.  When senior managers crossed the chasm, they were doubted and failed to deliver.  Secondly, often the non-Internet side just doesn’t get it.  AOL at that time and Yahoo at this time are desperately in need of new strategies to guide the company forward. 

 

At that time, both companies were falling (even if AOL didn’t know it, as evidenced by their lack of understanding of the impact of broadband and the dissolution of dial-up), and they need management that can both leverage existing resources in a new way and put into place a fundamentally new and forward-looking strategy for the company.  I’ve been to conferences where Yahoo executives alongside Microsoft executives and AOL executives talked about their ability to combat Google in the paid search arena.  They all said that they are still in the game and have strategies to pick up scene.  I wanted to throw a bucket of cold water in Yahoo’s face, saying “wake up, search as you know it is lost, Google will continue to gain market share because they are Google, so adopt new strategies.”  Yahoo has some very compelling properties, including Yahoo Answers, Flickr, and One Search on Yahoo Mobile, but it seems as if they are dabbling in these properties and coming late to the game on search with the hugely delayed release of Panama.

So will Microsoft be a better suitor?  Yes, they definitely would.  Not perfect.  For instance, I’m unsure whether simply gaining market share will help them in the paid search world.  Rather, this could help them at least cut overhead in that arena.  And the lack of distinctiveness of other properties also may lead to duplication.  But I do think they will be able to achieve scale benefits in advertising across their properties and the use of companies like aQuantive to provide benefits across the platform.  It also might allow the merged companies to focus on true growth areas, such as mobile and social networking.

 

Will these two entities get along better than News Corp and Yahoo?  Absolutely.  Not to say that there won’t be an immediate brain drain from Yahoo in such a merger, and this is partially desired by the merger.  Yahoo employees may very well be upset by such a takeover, especially by an entity hated as much as Microsoft.  However, Microsoft “gets” this business and could develop a sensible strategy going forward.  Not to say that it will be the right strategy as evidenced by both companies missteps when addressing Google, but at least it will be a sensible strategy. 

 

Google is also, especially in terms of being an outsourced search partner to Yahoo as a third option for Yahoo.  Google is also being discussed as a partner in the News corp deal.  I’m not so sure that Google won’t benefit from this deal, as their focus might narrow and a merger might harm one of the players.  They are fighting the Microsoft merger, but that doesn’t mean that they won’t benefit from it.  All that is sure is that Yahoo is struggling, truly needs suitors, and will likely receive a very good price for a sale.

 

I could discuss into more detail on all elements, but I’ll leave it at this for this article.  These talks were a long time in coming, and hopefully they will create value instead of evaporating it.