Yahoo Rejects Microsoft: Worst Decision Ever?

Will the Yahoo decision to refuse Microsoft's offer go down as one of the biggest missed opportunities of the Internet industry? Did Yahoo set themselves up for their ultimate demise in the search space?

There have been some major missed opportunities in our industry; decisions that must haunt those involved. In 1999, Excite had the opportunity to buy Google for $1 million. Former Excite CEO George Bell hates to be reminded of this. Arguably the biggest faux pas of our industry came in 1999, when Excite had the opportunity to buy Google for $1 million and refused. Is it possible Yahoo's turn-down of Microsoft's offer could trump it?

Excite is now a shell of what it once was, a minor part of Barry Diller's IAC properties. Could Yahoo eventually be a minor part of News Corp. or some yet to be founded Internet firm?

Gordon Crawford, portfolio manager for one of Yahoo's largest shareholders, told Silicon Alley Insider's Henry Blodget he was "extremely angry at Jerry Yang." And as Blodget notes, "if Jerry isn't seriously regretting the position he took on this deal, he should be."

It doesn't matter that Microsoft CEO Bill Gates has said his company is pursuing "independent paths," the news reporters and bloggers are still examining the event.

Forbes claims the "Saga Isn't Over". But also outlines opinions of what else Microsoft may be planning.

"Speculation is swirling that the Redmond, Wash., software titan could be considering acquiring big Internet properties, such as Time Warner's AOL unit and News Corp.'s MySpace social network, to gain a stronger foothold in search advertising and become a bigger threat to industry leader Google. To that end, IAC/InterActiveCorp's Ask.com search engine could be another target, says Rob Helm, director of research at Directions on Microsoft."

I've written before about Microsoft's obsession with search. It seems Bill hates not winning everything he tries his hand at. Why continue in a losing proposition? Or is the growth potential of search such a large pie that no one wants to walk away from it?

Microsoft should concentrate on what it does best. They stand a better chance concentrating on invading the on-demand software services.

Both Microsoft and Yahoo should put more effort into growing their publishing divisions; building more social communities that seem to offer a big future for the Web.

Yahoo is doing a lot of spin control to their investors. The Associated Press reports Yahoo claims Microsoft's increased offer wasn't real.

"Just how serious was Microsoft Corp. about raising its bid to $47.5 billion for slumping Internet pioneer Yahoo Inc.?

The answer is taking on greater importance as more outraged Yahoo shareholders threaten to sue the company's board or try replacing the 10 directors for the way they responded to Microsoft's sweetened offer.

With shareholders up in arms, Sunnyvale-based Yahoo has been trying to raise doubts about the legitimacy of Microsoft's last bid of $33 a share by pointing out that it wasn't submitted in writing."

Yahoo may be cutting a deal with Google for improving their paid search income, but ultimately this is stepping away from a large portion of the monetization of their search traffic.

Will the cautionary tale of Yahoo detail how they once owned the original PPC system that created the successful monetization of search? Will the fact they settled with Google for using a variation of their patented methods and later dropped that system for one Google had refined and improved on, only to ultimately lose all reach in the space to Google?

Obviously, Yahoo is hoping the public announcement of their long-term agreement with Google will return investor confidence, just as Excite had a few good years after they turned down buying Google. Whether or not this 'saga' becomes the precursor of another dot-com bubble amid the whispers of recession will be seen in the next 18 months. Investor confidence has been shaken and as the industry matures the high percentage growth rates will shrink.

So what's in your portfolio?

Chris Boggs Fires Back

Frank, what's the deal with your Microhoo obsession? I still feel that Yahoo will do fine without MSN. Alexa ranks Yahoo as the number one used portal worldwide, with recent estimates at about 250 million users. Yahoo is so much more than a search engine, like I said a few weeks ago, and the power of the community continues to be largely ignored by many of the pundits writing about this subject.

Everyone seems to be crying about the tumble in the stock value, but the only reason it ever went up to 30+ from 19 was on news of the Microsoft interest. As of yesterday, the stock was trading at 26+, so to the Yahoo shareholders who are crying, I suggest: "quit yer bitchin'." Remember that it was $19 only a few weeks ago.

I agree that Yahoo has to continue to grow this year. Just today I noticed an interesting test they're conducting in India, providing a look that is remarkably Ask.com-ish. These new "Glue pages" are intriguing and could provide a more mainstream competition to Google's universal results.

Others are claiming that Yahoo has a great shot in the social community space, and I agree. I've enjoyed Yahoo's various community efforts over the years. I was sad when all the racist idiots and political extremists forced them to shut down the "discuss" feature at Yahoo news.

Who's to say that Excite would've taken Google to where it is today had they spent that $1 million in 1999? Perhaps they'd be bigger now had they bought Google, but not "Google the verb," and there would be more equality in search ownership.

About the author

Frank Watson has been involved with the Web since it started. For the past five years, he headed SEM for FXCM -- at one time one of the top 25 spenders with AdWords. He has worked with most of the major analytics companies and pioneered the ability to tie online marketing with offline conversion.

He has now started his own marketing agency, Kangamurra Media. This new venture will keep him busy when he is not editing the Search Engine Watch forums, blogging at a number of authoritative sites, and developing some interesting online community sites.

He was one of the first 100 AdWords Professionals, a Yahoo and Overture Ambassador, and a member or mod of many of the industry forums. He is also on the Click Quality Council and has worked hard to diminish click fraud.