by Scott Buresh and Brian Cooper

When we last left Yahoo!, Jerry Yang (CEO) and the rest of the board had just spurned Microsoft's $44.6 billion takeover bid for the supposedly greener pastures of potential deals with AOL, News Corporation, and/or Google. The rejection of Microsoft's bid also put the current board on a collision course with Carl Icahn in what looked to be a battle for control of Yahoo!'s board of directors.

Trials and Tribulations

After spending millions to buy 68.7 million shares of Yahoo!, Icahn was set to nominate his own slate of directors for Yahoo's board at the company's annual shareholder meeting. Icahn would use Yahoo! shareholders' fury over the botched Microsoft deal to win votes for his board nominees and take over Yahoo!'s board. Yahoo! made a preemptive strike however and managed to appease Icahn by granting him three seats on Yahoo!'s board of directors in July. But what of the purported deals with AOL, News Corp, and Google?

Well, to date, the AOL and News Corp deals never materialized, at least publicly. However, Google and Yahoo! agreed to a partnership whereby Google would deliver ads on Yahoo!'s network. The kicker in the deal was that Google would pay Yahoo! more than Yahoo! could make with its own ads, meaning Google was essentially buying market share from Yahoo!.

This deal would be investigated by the U.S. Justice Department and opposed by Microsoft and online advertisers, who were arguing that the deal would be anticompetitive and result in higher ad prices. In the end, Google and Yahoo! were unable to appease Justice Department investigators by offering to cap the number of ads that would be displayed on Yahoo!'s network and Google walked away from the deal rather than fight a lengthy legal battle.

Just before Google walked away from the deal, Yahoo! reported 3rd quarter earnings. Operating income decreased 53% and revenues were virtually flat compared to the same quarter in 2007. In addition, Yahoo! announced it was laying off 1,500 employees as part of its efforts to cut costs. All told, the Microsoft bid, Icahn ordeal, and proposed Google partnership cost Yahoo! $73 million in fees for outside advisors according to a filing with the SEC.

In the wake of this double-whammy, Yahoo's stock tumbled to around $10 per share from its 52-week high of $30.25, which it reached when Microsoft was attempting to acquire the company. Yahoo's share of the search market also continued to decline, falling to 20% in September compared to 22.9% a year ago, according to comScore. What is Yahoo! to do? In a word, grovel.

"To this day, I believe the best thing for Microsoft to do is to buy Yahoo," Yang said at the Web 2.0 summit in San Francisco, the Associated Press reports.


To which Microsoft CEO Steve Ballmer replied, "We made an offer, we made another offer, and it was clear that Yahoo didn't want to sell the business to us and we moved on. We are not interested in going back and re-looking at an acquisition. I don't know why they would be either, frankly. They turned us down at $33 a share."

Could Ballmer be using his public comments to further drive down the value of Yahoo!'s stock before making another bid? Or is he stating his actual beliefs on the matter and only interested in "some kind of partnership around search?" Only time will tell, but it certainly seems like Microsoft is moving forward with new strategies for challenging Google.

Microsoft Moves On

Several of these strategies include new or extended partnerships. One such extended partnership is with long-standing Microsoft partner Hewlett-Packard, where Microsoft will install its Live Search toolbar on all HP computers in North America starting in January 2009.

Microsoft is also negotiating with Verizon to become the default search provider on the company's cell phones, according to the Wall Street Journal. Though the terms of the deal are still being discussed, early indications are that the two companies would share ad revenue generated from web searches made on Verizon cell phones.

Yahoo!'s Future

What does Yahoo! do to secure its future as a viable Internet property going forward? Well, it's changing leaders for one. In mid-November, Yahoo! announced Yang would be returning to his post as Chief Yahoo! as soon as the company found a new CEO. In addition, over the last few months, Yahoo! has rolled out a number of initiatives, releasing its own analytics package (similar to Google Analytics), updating the design of Yahoo! News, launching the APT (formerly AMP!) digital advertising platform, and announcing the Yahoo! Open Strategy, which aims to make Yahoo! programs open source.

While the change in leadership and these initiatives seem like steps in the right direction, we believe Yahoo! will need to pick a new CEO that brings fresh strategic ideas to the table and the company will need to develop significant proprietary innovations in search technology that convince users to switch back to Yahoo! for web searches. Yahoo! will probably need partners in this turnaround effort too. Microsoft is open to a partnership and combining search algorithm, mail, and instant messenger research efforts would save both companies substantial amounts of money. Such a partnership could also make Yahoo! the default search provider in Internet Explorer, Office, and other Microsoft software products and web properties. Whatever course Yahoo! chooses, hopefully it won't be too little, too late.

About the Authors

Brian Cooper is the director of online public relations at Medium Blue, where he promotes the company's clients on the Internet. He has a bachelor's degree in marketing and a MBA in management from Georgia State University where he graduated summa cum laude.

Scott Buresh is the founder and CEO of Medium Blue, which was named the number one organic search engine optimization company in the world by PromotionWorld in 2006 and 2007. Scott's articles have appeared in numerous publications, including ZDNet, WebProNews, MarketingProfs, DarwinMag, SiteProNews, ISEDB, and He was also a contributor to The Complete Guide to Google Advertising (Atlantic, 2008) and Building Your Business with Google for Dummies (Wiley, 2004). Medium Blue is an Atlanta search engine optimization company with local and national clients, including Boston Scientific, DS Waters, and Wake Forest University Baptist Medical Center. Visit to request a custom SEO guarantee based on your goals and your data.

December 5, 2008

Scott Buresh is the CEO of Medium Blue, which was recently named the number one search engine optimization company in the world by PromotionWorld. Scott has contributed content to many publications including Building Your Business with Google For Dummies (Wiley, 2004), MarketingProfs, ZDNet, WebProNews, DarwinMag, SiteProNews, ISEDB, and Search Engine Guide. Medium Blue serves local and national clients, including Boston Scientific, DS Waters, and Wake Forest University Baptist Medical Center. Visit to request a custom SEO guarantee based on your goals and your data.


Good writing.

I have something not everyone have seen. Yahoo's rival is not google. They are different thing. Yahoo do displays, google do search adds. Well, Yahoo do search too. google = 100%search, Yahoo = 90%dispay + 10%search. The math is quite simple. Yahoo is still Yahoo without search. google is nothing without search.

Anybody disagree to this point?

Yahoo is not doing well that's the fact, but it's doing far better than what the media have been saying. The point is also valid that Yahoo's search will do far better with support from MSFT. I don't get Jerry Yang. He just refuse to work with MSFT. MSFT has give him a ton of chances back since some two years ago.

Let's talk about my fourite topic: google. google is not what the media said it is. google is just a internet company with no technoloy. people know Wiki right? I do personally think Wiki is stronger in technoloy. what google really is: a few lines of search ads beside the window. This doesn't work forever, folks. I don't remember when was last time i have clicked the adds lines. Do you? A lot of people still do, that's why google is still making money. Why is that? good question.

the reason is most people still don't realize or are not concious of the sponsored results are ads. This group of people is getting smaller and smaller. Once you know it is ads, you just refuse to click on it. Another factor: people tend to click the ads when they really can't find any result. chance of that happen is samller and smaller too. To prove what i said is wrong please check with statistics: google's ad words are declining. It will get faster for sure. it's obvious search will eventually get to a level to webmail system. It still makes money, but ask Yahoo how much they make from Yahoo mail?

the conclusion: Yahoo will still be Yahoo no matter what people say. three years from now, if google's stock is still over $100, my house is yours.

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Search Engine Guide > Scott Buresh > How Yahoo! Walked Away from $44.6 Billion