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April 10, 2008

New plot twists in Microsoft-Yahoo soap opera

Posted by David Hunter at 12:16 AM ET.

Just when the plot in the Microsoft Yahoo acquisition soap opera was getting a bit stale, some new twists were added today leading off with Yahoo announcing that they would be stepping out with Google for a two week trial run of Google ads on Yahoo search. The Google ads are only supposed to appear on 3% of Yahoo’s US search queries during the trial, but this solution has been advanced before as a way for Yahoo to leapfrog the problems with its troubled search ad infrastructure and make some real money off the Yahoo search gold mine. Needless to say, wannabe suitor Microsoft was displeased to hear that Yahoo was still playing the field and raised fears of a monopoly without actually using the “m” word.

Then to add insult to injury, word leaked out that Yahoo is pursuing nuptials with Time Warner’s AOL unit:

Under the terms being discussed between Yahoo and Time Warner, the latter would fold its AOL unit into Yahoo and make a cash investment in return for about 20% of the combined entity, people familiar with the situation 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.

You may recall that Google owns 5% of AOL and handles their search ad business so Yahoo acquiring AOL and running Google ads would create a surprisingly homogeneous “content” and search company although not obviously a wildly profitable one.

Still, it’s all up to the Yahoo shareholders and which way they jump will mostly be determined by how much money they get upfront and not in some halcyon future. In that regard, Microsoft is rumored to be in talks with Rupert Murdoch’s News Corp. about merging MSN, Yahoo, and MySpace presumably with the objective of having News Corp. help Microsoft offer more for Yahoo. Since Google has the MySpace search ad contract and Microsoft owns part of MySpace competitor Facebook, such a plan would provide even more fireworks.

Stay tuned – there’s apparently life in this plot yet.

Filed under AOL, Acquisitions, Coopetition, General Business, Google, Governmental Relations, Microsoft, MySpace, News Corp., Yahoo

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2 Responses to “New plot twists in Microsoft-Yahoo soap opera”

  1. Yahoo’s Google ad trial a success? | Microsoft News Tracker Says:

    [...] Matthew Karnitschnig and Kevin Delaney are reporting at the Wall Street Journal that “people familiar with the matter” say that Yahoo’s trial of running Google ads alongside Yahoo Search results was a success and that the Yahoo-Google Deal Advances. Since Yahoo announced the trial on April 9 and it was supposed to last two weeks, it seems a trifle premature to be declaring it a success. However, the general expectation has always been that running Google ads wiould pay better than Yahoo’s inhouse sales, so a positive result would be no real surprise. [...]

  2. Yahoo and Microsoft to fight over AOL acquisition | Microsoft News Tracker Says:

    [...] back or further Steve Ballmer’s "big bet" on the consumer side of the Web. The last time the Yahoo part of this particular rumor cropped up, I observed that You may recall that Google owns 5% of AOL and handles their search ad business so [...]

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