Yahoo Goes Scorched Earth
What a day. I can't say neither side is throwing punches any longer in the epic fight over what's left of Yahoo. Microsoft and Yahoo are done, for the most part, with sternly worded letters. — Yesterday Yahoo made two announcements/leaks.
Context & Ripple Effects
Yahoo's February decision point has become a contest over alternatives to Microsoft rather than a private negotiation. Coverage of the same episode centers on a limited Google search-ad test and reported AOL combination talks, alongside reports that News Corp. may enter discussions with Microsoft.
First-order effects
- Yahoo gains a concrete advertising alternative through a limited U.S. test of Google's AdSense for Search, while Microsoft must contend with a target seeking leverage outside its approach.
- Reported AOL-Yahoo talks put AOL and Yahoo at the center of a potential defensive combination, though no agreement is established in the supplied coverage.
Second-order effects
- Microsoft's position weakens if Yahoo can show that partnerships or a merger path offer greater value than accepting Microsoft's terms.
- Google gains a chance to demonstrate that its search-ad system can serve Yahoo, making the contest over Yahoo partly a contest over advertising infrastructure.
Third-order effects
- If large portals use ad partnerships and combinations to resist acquisition offers, control of search advertising becomes a strategic bargaining asset rather than merely a revenue source.
- The episode points toward Internet consolidation being shaped by alliances among portals, media companies and ad platforms as much as by a single buyer's bid.
The trend: Internet portals are using advertising partnerships and merger alternatives to increase their leverage in battles for control.