Monday, May 5, 2008

Happy Trails: Yahoo-Microsoft Deal Sunsets as Jerry Yang Contemplates a New Dawn

Yahoo CEO Jerry Yang adds to his signature in his weblog posts the moniker "Chief Yahoo," a label that seems to be more of an epithet in the mouths of some shareholders and dealmakers disappointed by Yahoo's recent and apparently final rejection of a potential Microsoft takeover. With Yahoo stock plummeting on the first market day after the deal fell through the sore attitudes towards Jerry Yang's rejection of Microsoft's offer claims of needing some Prozac seem to be at least tied with the claimed "high fives" amongst some Yahoo executives when news of the deal failure came through. Even Yang himself on Yahoo's corporate weblog claimed that "No one is celebrating about the outcome of these past three months… and no one should." It was a tough battle with bad blood generated both inside and outside of Yahoo in the process.

But there's no doubt in my mind that Yang made the right decision for Yahoo shareholders as well as for the company itself. While there were some important synergies that would have come out of a Microsoft deal, in general it would have been an acquisition by a company driven by old concepts of intellectual property value of a company that is starting to move far more aggressively into new concepts for realizing the value of intellectual property. CNET News notes that Yang is betting heavily that its more open approach to content integration using its own APIs as well as emerging APIs such as OpenSocial will increase significantly the exposure of Yahoo content to audiences in increasingly valuable contexts. Combine that with a completed deal to use Google's ad networks and to integrate in AOL's user base and you have the makings of a company that will shine in building highly engaged audiences using content from many sources. Think of Yahoo as an enormous warehouse of content, commerce and community that can be rejiggered into countless social media applications. Sounds like the man has a plan to me.

In the meantime Microsoft is left licking its wounds from what was perhaps their last great opportunity to leverage their way into more secure online revenues in the face of stagnating income from its traditional product lines and modest growth from its online ventures. The Yahoo acquisition would have brought them some synergies but at the end of the day it was largely a cash flow fix and an attempt to buy an audience for Microsoft's online tools that may or may not have succeeded, given their history of coming in very strong and proprietary with such efforts. By the time they would have focused on Yahoo's existing efforts to open up their content and to focus on contextualization rather than IP ownership as the key to revenues it's not likely that they would have survived Microsoft's more traditional outlook on IP value generation.

In this parting of the ways Yang will face angry shareholders and some shell-shocked employees for some period of time and softened share prices as the new(er) Yahoo takes shape. It's unclear that he will survive this unsettled environment in his current position but hopefully his vision for a Yahoo more in tune with today's most valuable opportunities for content will continue to move on. In the meantime Microsoft needs to consider both new cash cows and new stars on its matrix of properties to help it make a transition to a future that is moving away steadily from proprietary software on proprietary platforms as the most certain long-term bet for steady and growing revenues.
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