Yahoo committed seppuku today

Yahoo committed seppuku today.

The once proud warrior of the internet space laid down its sword,  knelt at the feet of Microsoft and gutted itself today. There was no honor in this death, it was one brought by the shame of losing to  Google and a lack of faith in one’s ability to compete in the space they created. To be clear, Yahoo didn’t need to do this deal,  Microsoft did. Ultimately Yahoo will look back at this moment as the second–and perhaps fatal–mistake in their epic history.

Search is the most important business of the 21st century and owning a  commanding lead in second place is not insignificant. At one time Yahoo was the number one search engine and portal. However, they  didn’t see the value in search and decided to syndicate that piece of their business to a small company called Google. For a couple of years  we all experienced Google in Yahoo’s wrapper. Our only indication of who made this wonderful tool was a tiny “Powered by Google” logo on the top right of the page.

We noticed and we learned. The thought leaders went directly to Google  and dragged everyone but the laggards (Yahoo’s current 20% market
share) with us. Yahoo accelerated the ascent of the master. Had Yahoo  not given their search franchise over to Google back then, there is a good chance that the race for the most important business of the 21st  century would be a dead heat. Certainly it would be closer.

Today, with their Microsoft deal, Yahoo again undervalues their search asset. Again, they will be “Powered by…” and again they will destroy their brand and its value.

All that being said, Microsoft’s obsession with taking Yahoo’s second  place position and adding it to their 3rd place position is not an indication that it’s time to sell. Far from it. When Microsoft is  interested in a space it is a clear sign that you should be investing in it–not selling it.

Microsoft’s deep dive into a graphical user interface on an operating  system, Windows, was a clear sign to Steve Jobs that his bet was correct. Steve doubled and tripled down and that is why Apple is  Apple. Microsoft’s deep dive into word processors and spreadsheets was the clear sign to WordPerfect and Lotus 1-2-3 that this was a space worth fighting for.

Microsoft’s massive investment into video games, mobile operating  systems and search are clear indications that Sony’s Playstation, Google’s Andriod, the iPhone, Google and Yahoo are very important companies.

Nintendo didn’t give up when Microsoft came into the video game  space–they innovated. Now the Wii outsells the mighty XBOX 50 million to 30 million. That is how you fight Microsoft: you innovate. Steve Jobs knows this, Nintendo knows this, and Oracle knows this. Yahoo, apparently, did not get the 40-year-old memo.

Aggression and innovation wins. Period.

To say it clearly: Microsoft does not enter a market unless it’s  important, huge and on the way to becoming even bigger. Microsoft is the buy sign, not the sell sign. The people at Microsoft are brilliant and not to be underestimated–history has shown this to be true.

The Right Move
==============
The proper move when someone wants something you own badly is to  invest more in it. “Oh, you like my house and you’re willing to pay double what I paid for it? Did I mention I just redid the kitchen, bought the lot next door and put in a newHVAC system?” How much is it worth to you now? That’s gangster CEO-level poker playing. You raise and raise while you develop your hand and increase its value.

If I was the CEO of Yahoo I would have bought Powerset and five other  innovative search-related startups in the past three years, taken bold steps to innovate in search design and spent $100m in marketing the service.

Oh wait, that’s exactly what Microsoft did! Zing! Pow!

What did Yahoo do instead? While playing tough guy with Microsoft’s  war chest of money, debating $31 or $33 a share, they took their eyes off the prize and stopped innovating. The founders ofFlickr and  Delicious left, Yahoo’s once promising think tank was shut down, the products didn’t advance and all the cool kids left. What a disaster.

While Rome was burning in Sunnyvale what did Microsoft do? The opposite: they invested in search, hired the cool kids and gave Yahoo, their shareholders and the public one very clear message: Yahoo is dying on the vine, incompetent and we’re solving the problem. You can sell to us or get run over by us. What did Yahoo do? They took a page out ofTimeWarner/AOL’s handbook and brought in someone who had never worked in the consumer internet before to clean up the mess.

[ Note: I’ve never met Carol Bartz so I can’t speak to her abilities. Clearly she is a very competent deal maker and operator. However, she’s not in the league of the growing “product genius” Google cabal of Larry, Sergey,Marissa, Chad and Salar. ]

Yahoo’s shareholders should be in full revolt right now, but the truth  is the shareholders of Yahoo lost faith long ago. From the Yahoo  shareholders I’ve talked to over the last couple of years–and I’ve met the big institutional ones who own large chunks of it–they want to get the best possible price out of Microsoft and move on. They were  tired of the war and thought gutting the pig and selling the pork was better than building a farm. Well, maybe that isn’t the best analogy in the world, but I think you get my point: cut it up and ship it out. We’re done here.

Round Three
==============
And so ends the second chapter of search and begins the third.

Chapter one was inception up until the launch of Google.

Chapter two was Google’s rise and Yahoo’s death.

Chapter three will be the two-horse race of Microsoft and Google, with the inevitable emergence of a third and fourth player.

That’s the silver lining for startups in all of this. As Google and Microsoft lock into a dog fight for revenue and market share, leaving the Yahoo carcass on the side of the road, the bevy of crafty startups will get their chance to take the third, fourth and fifth positions in this very important race.

The lesson for all startups–and BDC’s (big dumb companies)–is that innovation is all you have. Once you stop innovating you lose your talent and you lose the race. Never. Stop. Innovating. Never. Never. Never.

Man I love this game.

Question: Who got the best of this deal and why? (replies are considered ok for reposting unless you say “not for republication” or “ok to republish, just don’t attribute to me”).

all the best,

Jason@Mahalo.com

http://www.twitter.com/jasoncalacanis
http://www.calacanis.com

Note 1: To unsubscribe hit reply and put unsubscribe in the subject line.

Note 2: Sorry for the delay in getting you a newsletter. I’ve had some major life events go down recently and I’ve been suffering from massive writers block. Perhaps today will open the flood gates up again.

Note 3: If you haven’t  tuned in to This Week in Startups it is going well, we’ve done almost ten episodes. www.thisweekinstartups.com

Note 4: Thanks to C.K. Sample for the last minute edit.

  • Josh Lee

    I definitely think Microsoft got the best end of this deal…they just picked a substantial portion of market share they didn’t have access to before.

  • dave

    The text on your blog is too dark, it’s too easy to read. I think you should make it a few shades lighter.

  • http://distributedsearch.blogspot.com Borislav Agapiev

    Well said, innovation in this space is only beginning. I am
    biased, because of my startup, but these are exciting
    times.

    There are several perceptions which are now (very) firmly
    established and which are going to be debunked:

    * That search is a province of really big and powerful and
    nobody else can put anything to compete with them
    * That the massive scale of the Web can only be handled
    by algorithms and crawlers and users do not have
    much say about how it is done

    So we should be in for some fun times :)

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  • http://www.fanpop.com Dave

    As a former Yahoo (at least from the earlier boom days) it saddens me to see how far Yahoo has fallen.

    With their abandoning search and in-house search advertising you can add Overture and Inktomi to the long list of failed (and expensive) Yahoo acquisitions.

    So many assets both home-grown and acquired have been wasted at Yahoo. It’s really sad.

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  • http://mikeabundo.com/ Mike Abundo

    Google got the best of this deal. Now they have just one competitor to think about.

  • http://twitter.com/SocialJulio Julio Fernandez

    Jason, good post.

    A few years ago, I had a lot of $ per month
    for search advertising. Google took my $ while Yahoo’s
    display and PPC teams fought with each other and could
    not finish the paperwork to take my money.

    After a year, I was not able to give 1 cent to Yahoo,
    100% of my budget went to Google, lots of money.

    Looks to me that they will have the same problems with the
    MSFT sales team.

    I just added more $GOOO shares to my portfolio.

  • http://www.leehower.com Lee Hower

    Well put. Though to be fair Yahoo! first ceded their search biz to Inktomi before ceding it to Google.

  • erin

    Brilliant tie back to start-ups and business opportunities. Totally agree with the push to innovate, innovate, innovate. So, Search is one big area Microsoft is investing in. What are some others?

  • psmalera

    Reached many of the same conclusions as you,
    but for me this goes back to installing Semel– akin to Sculley
    at Apple. No idea what he was getting into or why it mattered.
    Wish I had remembered to get into Flickr and Delicious peeps
    leaving in frustration– but ultimately, that’s a symptom of
    a rudderless ship.

    http://trueslant.com/paulsmalera/2009/07/29/bing-your-yahoo-is-finished-deal-with-microsoft-marks-end-of-an-era/

  • http://www.tischfilmreview.com codyvbrowb

    blistering.

  • http://www.victusspiritus.com Mark Essel

    Josh Lee called it, Microsoft got a great deal. Your font is hell on my eyes Jason but you’re 100% right in this post. But if the investors/shareholders want something, who are we to argue? It’s theirs to sell.

    Wasn’t aware you blogged or I would have bugged you here with my question about angel/VCs covering the cost of TCtop50. Thanks for replying in Mahalo and enjoy your 2 mahalo bucks ;).

  • http://lmframework.com David Semeria

    A quality post. Full of insight and value-added. Respect.

  • dave is right

    dave is right, text is too dark. I suggest yellow on cyan or magenta on red, with those combinations you cannot go wrong!

  • http://fleshasiadaily.com thegreatest

    Text color was just a tad hard to read for a post this long.

  • Bill Freemium

    As part of the agreement, Yahoo search will return text with light gray text.

    If you pay a premium to Microsoft, you will get black text.

  • http://pinksplash.com New York Photographer

    Actually I agree with Dave: on some laptops with crappy LCD panels (my Lenovo)
    the text gets very hard to read when off center: it’s just too light for 6-bit TN panels.

    Speaking on the subject: I will be curious to see how it will get implemented. Maintaining
    your brand is crucial here. If search results won’t scream “Microsoft” all over the place then
    people won’t even care where the results are coming from. In other words Yahoo can plug
    any search engine they want: and that’s a good tool to keep Microsoft honest. This isn’t about
    technology but rather about brand recognition. People come to Yahoo or Google to start
    their surfing day, nobody comes to Bing. And Yahoo deal won’t change that unless something
    else happens.

  • http://theogeer.net theo

    I love the Asimov style of Round Three. Reading it made me think of the Foundation novels, and the predictions of Hari Seldon.

    On a more related note: right on target.

  • http://www.langfeld.co.uk Ben Langfeld

    Mahalo and the like got the best of this deal. And that includes Twitter too. The less distinction there is among the big-boys, the better off all the really interesting companies are.

  • http://www.buildingcontractorsecrets.com/myblog.htm Omion Emma

    In modern day business the most important market may not be what’s
    going to stand you out. Yahoo has a lot in their hands so shelving off some workload may be benefial in the long run.

  • http://rkrishnakumar.wordpress.com Rahul Krishnakumar

    Between Yahoo and Microsoft, Microsoft clearly got the good deal. Though they may not get much of the revenue in this deal, Microsoft has PLENTY of other places where they can recover that cost. Yahoo on the other hand has nothing, and I’m truly clueless as to how they can use their great finance, sports etc. applications to make a lot of money. Microsoft also will establish the Bing brand name even more now, as well as AdCenter so after this ten year deal is over, no one will know what Yahoo Panama was, or what Yahoo Search is. Yahoo got played, and as you said… they have committed suppuku today.

    Other than that, clearly I’m a winner because Bing seems to be getting better and better as every day passes.

  • http://www.billhartzer.com/ bhartzer

    I think both Yahoo and Microsoft both got a good deal: if they were not happy with the deal then they wouldn’t have agreed to the terms, right?

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  • russjosephs

    Ha! Yes. Nice summation. Yahoo got *Binged*. :)

    http://twitter.com/russjosephs

  • http://blog.fabiodoispontozero.com Fábio Silva

    I’ve been waiting for this decision from Yahoo.
    Now Google has a competitor, powered by ‘Microsoft’.
    Good bye, Yahoo (1994-2009): rest in peace!

  • Jeff Weitzel

    Unless . . .

    Where I differ with you in this analysis is that Google is
    essentially unbeatable in search as it exists today, because
    people are used to going there and they are happy enough with
    the experience that even a genuinely superior competitor will
    only ever lure away a few percent of market share.

    If anyone eats Google’s lunch, it will be by inventing an
    entirely new paradigm for finding things on the internet,
    one with powerful network effects and a big first mover
    advantage. Now that Yahoo! has foisted of the losing business
    of competing head to head with Google off on Microsoft, in
    theory it can devote the full energy of its research division
    to inventing inventing one of those.

    That said, I used to work for Yahoo! You’re probably right.
    In two years, we’ll be surprised whenever they make any
    headlines that they are still in business at all.

  • Pete

    Don’t confuse Microsoft’s high profile launch with success.
    Google is no longer a search innovator, but this is because
    it has the most to lose by failure and the least to gain from
    further success. Microsoft still has very little to lose and
    much to gain, and so will be taking risks. Failure is still
    a big possibility for Microsoft, most likely that time and
    again failure mode for them: scale. With history as a guide,
    the odds are that a Microsoft search engine will take longer
    and longer to deliver results as the traffic grows, until it
    reaches a balance between quality and performance.

  • http://www.makovision.com Don Makoviney

    Intuit is another example of a company that faced
    the full brunt of Microsoft when MS launched MS Money.

    Intuit innovated and listened to users and kept releasing
    new features and continually beat out MS Money to where
    MS Money became irrelevant.

    Great post by the way. Retweeted. :-)

    Don Makoviney
    Makovision.com

  • http://www.makovision.com Don Makoviney

    Is it just me or is the comment field on your blog kinda
    wonky in firefox?

    Figured I’d give you a heads up. Disregard if it’s just me.

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  • http://Www.gnip.com Eric Marcoullier

    Jason – Yahoo wasn’t even in the search business until 1999, when they lost Google as a search provider (their third partner, I should add) and they allowed the market to redefine confer and search portals as the same thing.

    Curation and search are antithetical ways of using te web and it’s about damn time that Yahoo stopped trying to do both. You don’t see Google focusing on curation, after all.

  • http://Www.gnip.com Eric Marcoullier

    I fucking hate autocorrect.

    The above should say “redefine search and content portals as the same thing.”

  • http://hyveup.tv xavier vespa

    They both win: Microsoft is finally disrupting Google’s dominance, and Yahoo finally got rid of its worse nightmare. For the Sunnyvale company, it’s a rebirth opportunity!

  • http://www.marketingtactics.com Dave Barnes

    I second dave’s comment about the text color.
    He is being sarcastic, but I won’t be.
    YOUR TEXT COLOR IS TOO LIGHT.

  • http://robertsandie.com Rob Sandie

    Tend to agree with you here Jason, but Microsoft should be focusing on Enterprise tools. They have some amazing products that compete with Oracle and all this is simply a distraction from that.

  • http://www.stepforth.com Ross Dunn

    I am with Dave, definitely make the text lighter…

    As for YaBing… well, I sure would have loved to be the fly on the wall when this deal was in the works. It could have been amicable but it could also have been a sink or swim pitch from Ballmer to let Yahoo slink away without totally selling out (right away); I am leaning towards the latter. Either way, you just know Ballmer is thinking “you are so mine” now that Yahoo has put ink to paper.

  • typesetter

    I agree with dave up there, you need to lighten up that font color a little. It is way way way to easy to read. You need to give your readers more of challenge when reading your blog. Keep them on their toes!

  • http://yahoo.com Harry Krupp

    To be honest, I don’t understand all the hype about Bing. I’ve
    compared Google, Yahoo and Bing in a blind test and amazingly,
    Yahoo won.

    So, I really don’t get why Yahoo has so little confidence in
    its search engine that they did this strange deal with MS.

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  • http://copacabana.com marcelo antelo

    The internet is the biggest looser!

    Microsoft continous his march against the force, and it
    looks it wins this round!

    Despite the fact to not be number one in search certainly that
    was passing traffic and credibility to their other properties that
    to rank better. This decision will still be regreated by the
    major management, but till there their will already
    have cashed their bonus check!

    For me it´s a very sad day to see the end of another
    internet icon, as we saw in near past, very sad…

  • http://stockvalues.org Jake Berzon

    Microsoft got what they were after and they didn’t even have to pay a dime. On the other hand, I can’t really call them a winner, either. this will be one hell of a tough deal to complete.

  • Chris

    Nice post. I agree that constant innovation is important.

    I also agree with comment #2, but I’ll rephrase it.
    I had problems reading this post because the
    font color was too light. Black font would be nice.

  • http://www.adrianscott.com/ Adrian Scott

    Would be interested in your analysis along these lines in
    relation to the decision to sell Weblogs Inc. to AOL…

  • http://notthatkindofoperation.blogspot.com/ Hal O’Brien

    Actually, Chapter 3 will be when Google starts losing revenue because its customers — the advertisers — wise up to the fact advertising doesn’t work any more. This has already happened for newspapers, and is in motion for radio and TV. Google has largely insulated itself from the train wreck so far by distributing its customer base among so many small-time adveristers, but the handwriting is clearly on the wall. Which is why Google keeps trying so desperately to find something, *anything* other than search ads to make money. Heck, what do you think Chrome OS is?

  • http://estatecreate.com Henry Yates

    Wow, excellent post. What a great industry to be in, I am excited about getting at it tomorrow morning!

    Great insight into Microsoft. I have to agree with you about Carol Bartz. There is no way that you can compete/out strategise the product genius set with so little consumer internet experience.

    For me there is alot of innovation to come with search and lots of Yahoo product that could have helped them be in the lead group. Key things are 1. social – Yahoo has huge asset here. Through Mail and Flickr they are up there with Facebook on the social graph stakes. 2. real time. Only company that is anywhere is Twitter which means Yahoo was not loosing this battle 3. sematic web. Very hard problem which nobody has cracked = all to play for.

    Anyway, as I said, great post – truly inspiring.

    Big fan of TWIST – I’m UK based so I get the podcast. Keep it coming.

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  • http://www.mytestbox.com Mircea @ MyTestBox.com

    Google didn’t have to worry too much about Yahoo…they knew
    pretty much how the things are going there, especially when
    Yahoo refused to buy them in the past. Microsoft was/is
    the only one to worry about…they have deeper pockets
    than Google and it will become even deeper when Windows 7
    launches. When you have the money all you need is to be
    aggressive and that Steve Ballmer is one tough son of a gun
    (in a good way). No innovators will work for an old man
    who does nothing but looks at the stars (Yahoo)…

    Like somebody said, search needs a lot of investment
    (time and money)…startups which do innovate in this field,
    like Powerset or Wolfram Alpha, will mostly get acquired by
    those two big gorillas.

  • Jose Fajardo

    I honestly think its a win, win. People forget that content is king and Yahoo has a hell lot of good content. Let them concentrate on increasing the quality of content, let MS worry about innovating search and these 2 players are gonna have a great relationship going forward.

    Honestly Yahoo can be what the big content studios of today arnt. This is a great day for both of these companies!

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  • Randy B

    I agree Microsoft got the prize and it is all over for Yahoo. I am looking forward
    to seeing what third and fouth place companies will come up with to compete.
    I just hope to see them survive when Google and MS come knocking on their
    door with checkbook in hand.

  • http://thingsilearn.wordpress.com/ Paul

    @Mike Abundo – I don’t think Google have been thinking of Yahoo as a serious competitor for quite some time – for reasons clearly outlined in this post

  • Val

    Nice post Jason. I think the questions you pose at the end are bad questions. Who got the better/best end of the deal? Depends on what each player thought they had and what they wanted out of the deal. Both sides believe they got the better end of the deal by definition, unless you think yhoo is intentionally underselling itself. So the answer: yhoo and msft each got what it wanted. Each thinks it got the better deal.
    If you include Google in the question, I’d say msft-yhoo gets 1 point of armor class and loses 1 point of agility. For cpc and revenue per search, msft-yhoo will likely experience upticks. Chances are good that in revenue terms, msft-yhoo will gain some share. From a query volume perspective, it’s unclear if this union changes anything per goog. One thing this union will do is decrease the number of search engines iterating. Competitively, in search, if you want query volume share to be changing, you want iterations, innovation and risktaking–as msft did with bing. Ideally, you want yhoo, msft, mahalo, Twitter, Facebook all iterating. Now you have a mini-monolith in msft-yhoo that will iterate and innovate half as much.
    All in, I’d say yhoo realized it wasn’t going to gain share against goog. And you have msft who’s so desperate to be somebody in search. I’d say they got exactly what they wanted. This union will now surrender query market share together because this game as we know it is over.

  • Dave

    Jason you nailed it.

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  • http://shootyoureyeout.net JV

    Oh please. What a silly idea – that Yahoo killed themselves and did not innovate.

    How much more grand to stay in search and fight the good fight and fade into oblivion.
    Clinging to the past one more time.

    By choosing bling or bloing or whatever it is called Yahoo can survive and focus on making money.
    Not spend money inventing old technology hoping to beat Google while they die slowly and painfully.

    You are correct that this could be the end of the old Yahoo – the one that fool Yang
    ran into the ground and filled with sycophants and money leeches. Or you could be
    wrong and this is Yahoo accepting that times are different, al-la America in general, and
    it is time to do what makes money and move on to something new and better.

    Time will tell if this is the start of fighting or the start continuation of dying.

  • http://takameyer.com Andrew Meyer

    Microsoft got the best of this deal. They’ve been trying to get Yahoo for a while now and it has finally happened. Originally they failed when Google helped them by offering to run their ad server. Unfortunately they squandered their extra profits and didn’t invest in what is important. With Microsoft’s Bing release and Yahoo purchase, it will be interesting to see how the future pans out. The next year is going to be very interesting indeed.

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  • jimmyjj

    Please lighten your text – there’s just too much contrast.

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  • http://twitter.com/kevinnorman Kevin Norman

    Excellent article, Jason. Thanks.

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  • http://seekng.com alien

    no shame in losing to google at all

    get a grip you dramatic bastard

  • John

    How long before Google’s percentage of the search market will be 80%?

  • Bill Jarvis

    Well, goodbye Yahoo, hello Google. When Bing came out I heard that MS has censored negative information on web pages. If you request a page that was censored you get the censored data, not the original works. Also, I’m not interested in providing more information about my activities to MS. Moved most of my web browsing to a Mac.

  • http://blog.lookery.com Scott Rafer

    Jason,
    It’s 2009. Google and search a big deal for ~8 years. Windows
    has been a big deal for ~20 years and is well past its power peak.
    And, technology cycles are accelerating.

    You’ve bet Mahalo on the idea that search will be important for
    a long, long time. It may not be so.

  • http://mugunthkumar.com Mugunth Kumar

    Well said…! Stop innovating… and you lose your share…
    Precisely this is what happened to Internet Explorer.

    After 6.0 release, Microsoft just stopped innovating IE.
    Result: Microsoft lost much of it’s share to Firefox and Chrome.

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  • Don

    Bartz is no dummy…did you guys get the part where Yahoo get 88% of everything…for doing next to nothing?…and they now have a few years to sit back and see where things go, without spending a dime on R&D. Go read about how Carol turned Autodesk from a small, stagnant cash cow into a behemoth.

  • http://nilslucas.com Dennis Hettema

    Excellent article!

    I’m not sure if this is an English saying but in Holland we say: “If two dogs fight for a bone it will probably end up with the third”. I agree completely with how you exactly described this saying. I’m putting my money on an innovative, rebellious and stubborn start up in the long run.

  • merakli

    powerset is gone to msft but they can still buy and rescue the sniking ship of Jakia…

  • Monk

    400 million up front payment would have been justified for yahoo search tech.

  • http://bojanbabic.blogspot.com Bojan Babic

    Can you imagine how Qi Lu is feeling now? I guess he feels like
    Alcibiades conquering Athens with Sparta

  • Mitchel Tyrell

    I’m hoping this will put some real competition in the online advertising space and force google to give better returns on adsense. If this partnership will lead to more relevant ads being purchased on yahoo/bing I might change my ad provider.

  • http://www.medianama.com Nikhil

    My first take was: Microsoft got the better deal: it’s now a two horse race instead of a three horse race, and Bing gets Yahoo’s users and search advertisers, and the scale and technology to improve bing. Maybe some great Yahoo Search employees as well. After 5 years, MS can set up its own team for selling to premium advertisers, and pay Yahoo lower TAC.

    But mobile’s where the future is, and for some of us, where the present is – India has over 400 million mobile connections, and growing at 10 million a month. Maybe Bartz exited web search to focus on mobile – mobile search isn’t a part of this deal. The battle with Google for the mobile hasn’t been decided yet, but I’ll be surprised if the Yahoo mobile homepage assumes the dominance that the web page has.

    Overall, MS got the best of this deal

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  • Siddharth

    What a wonderful insight. I agree that the talent that Yahoo
    commands, they could have given fight..

    P.S. @Jason, you can start innovating right here on your blog
    by using black color font.

  • http://webreflection.blogspot.com/ Andrea Giammarchi

    Jason, you did the same when you chose the color for your text: improve the contrast mate, I am sure this post is interesting but I can’t read anything!

  • http://www.mobilenewsasia.com robin

    Microsoft played the right cards on this. Yahoo really boo boo it at the end of the poker game. playing bluff but not able to get it right.

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  • http://www.techchuff.com Cian

    The headline is getting truer by the day

    “Yahoo To Unveil Relaunch As ‘Online Web Site’”

    http://www.techchuff.com/media/yahoo-relaunch-as-online-web-site

  • asif1000

    You’re nuts to think that search is the most important business of the 21st century – seriously you are.
    Sustainable energy products and services and finding renewable sources is will to do more to balance the lives of billions and ensure we all have some kind of future.
    Whats the matter – are you still sore from back in the netscape days?

  • http:://www.twitter.com/kriscobbaert k

    Mike, there’s Twitter, Mahalo, Facebook, …
    They aren’t attacking Google head on but I wouldn’t rule them out and say Google now has just one competitor to think about.

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  • http://www.homecamera.com Varun

    @Borislav: folks can always put in things to *compete* with them. But there’s competition and then there’s competition. A fly watching two buzzards devouring a carcass isn’t really competing with the buzzards, but might get eaten by them. The cost of switching people over – making them change habits – is absurdly high. Ask Microsoft. After spending a possibly vulgar sum on promoting bing (cash give-aways, advertising, the works), they went and inked this deal with what appear to be decent TAC terms for Yahoo.

    @Jason: Agree 100%. This feels like a deal that Yahoo did because they had to show they were doing something to get focused again. Is getting focused on content the way to go though? What’s the entry barrier to content? One other memo that doesn’t seem to’ve gone out is that it’s not one mega-content site that’s the competition… it’s dozens of highly specialized startups and/or content companies that will eat away at Y’s market share in their respective areas. Content habits are way more fickle than search habits.

    – Varun.
    Founder, HomeCamera

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  • johnbondjovi

    I arrived here via Google Reader and was not going to comment
    until I saw Dave’s comment.

    He is right, your text is a very faint. I had to highlight the
    text to read it comfortably.

  • sup yo

    Dude you write like a schoolkid thesis – microsoft is so not infallible – encarta was so ill timed and nuked by free wikipedia, zune is a joke, and hasta to vista. Even bill has already left the bldg

    These two are hanging onto each other like caprio and kate in titanic

    Sure, one will drown but neither’s going home in the ship they headed out in

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  • http://www.radugeorgescu.ro Radu

    I am huge fan of innovation too, but things are not in
    black and white. Just a few examples:
    – ICQ was innovative, but YM took the pie
    – metacafe was innovative, but youtube hit the jackpot
    – classics Apple/Microsoft (mouse, windows interface, etc)
    I am sure others are there…

    So: innovation is great, but execution is what makes
    the difference

  • Jihad

    With Twitter’s repositioning as “real-time search”, and search becoming a two-dog race, both Google and MS must be salivating to buy Twitter. I wouldn’t be surprised if either of them layed down 1+ Billion to get ahead under these circumstances.

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  • http://www.prohiphop.com Clyde Smith

    This is a really beautiful argument.

    It’s been sad watching Yahoo go downhill. I’ve been having daily problems with logging into my yahoo email for weeks, if not months, and some unexpected problems with their webhosting as well.

    If they can’t innovate and they can no longer provide solid basic services then it’s all downhill from there.

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  • http://www.woodstreet.com Jon-Mikel Bailey

    I’ve read about a dozen or so articles and blog posts on this coup but you have single handedly summed t up the best… kudos! It makes me think of the scene in the movie where Noak Wiley plays Steve Jobs and the guy from the Breakfast club plays Billy Gates where he realizes who the real “enemy is. Sorry, can’t remember the name of the movie. You have to watch Microsoft and learn from them, not just hate and dismiss.

  • marko

    I think this deal is pretty irrelevant compared to the hype. Yahoo was decomposing long ago. And even though msft is a behemoth overall, they are an underdog in search and are making the classic mistake of trying to fight the giant head on….in search they are david, and google is goliath (http://www.newyorker.com/reporting/2009/05/11/090511fa_fact_gladwell).

    This is the fundamental flaw with BDCs, they are culturally and structurally incapable of acting as challengers in new growth areas due to success in other businesses. The next wave of search is clearly going to be leveraging personal/social data to make a better experience…….smart companies go to where the ball will be, not where the ball is….i guess this is why start-ups exist :)

  • kketefia

    As an ex-Yahoo who worked on the search advertising side, I couldn’t agree with you more. Yahoo has continuously made the wrong moves on search, from failing to acquire Google when they had the opportunity, to constantly underinvesting in all things search, and now giving up on it altogether. I think the only right move was the acquisition of Overture, but they failed to play that out properly.

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  • dl

    this is about monetizing the search /content hybrid for the living room. Ad $ that
    hybridizes television ad $ bohemoth with goodle’s adsense.
    There is a good chance EVERYONE outside of Microsoft and Yahoo should be scared.

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  • Billy

    Why is this a surprise? Yahoo is a Jack of all trades and a master of none. They purchased Overture in a true steal and buried that business. At least they had the common sense to make that purchase. What a huge joke this is – innovate? I think only weather widgets and emoticons.

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  • http://wangjel.com wangjel

    “The once proud warrior of the internet space”
    investors are rarely innovative developers, and this decision
    not made by young skater/surfer/developers but by nice old
    Balmer kind of guys, so naturally taste like that,
    in terms: obey, strategy, calculate, alliance,
    loosing dignity, loosing integrity…………only one fruit:
    money…….innovation “~0″

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  • http://sify.com ramananda sengupta

    One of the best articles I have read on the subject. Wish I could write half as well. Ramananda Sengupta, Chief Editor, Sify.com

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  • http://karmaparrot.com/ Pierre – Karmaparrot

    Google is making all that money because they’ve become the digital Yellow Pages. Message to competitors: don’t try to be the second-best Yellow Pages. You already missed the boat. Try to be the digital White Pages. Oh wait – Facebook’s already done that. Find the next thing that isn’t being done well.

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  • http://www.diamond-concepts.com FransR

    Technology companies can only be successfull with strong
    technology based leadership. A marketing deal like the
    Microsoft / Yahoo combination will not have the innovation
    required to succeed in a competitive market. Google will be
    profiting from this deal and maintain its leading position.
    Small new upstarts will emerge, most likely by people leaving
    Yahoo, and take the other parts of this emerging market.
    Likely participants will be existing publication houses, looking for
    new opportunities.

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  • giantslor

    John Dvorak’s take on Microsoft is a bit different:

    http://www.marketwatch.com/story/is-the-party-over-for-microsoft-2009-07-24

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  • Guapis

    ” the most important business of the 21st century “, that’s a bold statement, considering the century just started.

  • http://wraptinweb.blogspot.com Alistair Nicholson

    Brilliant Post … but let’s also think INSIDE the box for a
    minute. Yahoo had so many opportunities – a brilliant desk top search that they dropped for an outsourced solution that has never worked properly for me, failure to ensure that synch for contacts, tasks and other data was a priority and worked properly. Leadership squandered in the very small business information that google is now moving into. Their contacts were always bookmarkable so they could be hyperlinked to company records and tasks in non yahoo products. But where was the Yahoo integration. It’s been so hard to stay a loyal customer – they didn’t drop just one ball, they seemed to lack strategic focus. Inevitable but sad.

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  • http://www.fdih.net Morten Kamper

    Jason – this is a great post.

    I agree that we are only scratching the surface in terms
    of the future of search.
    And this leaves plenty of business opportunities for
    Mahalo and other great search oriented companies and
    services.

    One of my own observations is that a Google search is not good at
    finding images on flickr and a Yahoo! search
    rarely finds videos on youtube. How come?

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  • http://gregorytalon.blogspot.com Grégory Talon

    Hi Jason,

    Your article is pretty interesting for a non-product audience and from an high-level strategic perspective.
    But if your lesson makes sense in the context of your article, you really need to understand that people don’t embrace the Yahoo! brand to search, and this even more true outside of the US. That’s why, investing or not on search, Yahoo! search is not gaining any market share.
    Search is not the Yahoo!’s value proposition since more than 6 years, if we can regret the past move to not have acquired Google, this is not the same story today. Isn’t fair to decide to focus on what your brand do for people while keeping 88% of your revenues and removing most of the costs?
    You base your analysis on the assumption that bing integration will be as the google one.
    Maybe you’re wrong here.

    Again it’s a nice article, but I think it’s pretty early to what is coming out of this.
    Cause what you ask at the end of the day is to make Yahoo! a search company first, which means killing what the brand stands for in the eyes of 51% of the global Internet population.

    Wouldn’t it be the biggest marketing mistake ever?

  • http://www.victusspiritus.com Mark Essel

    Never mind, I’m blind. Long day (can you nix this and the previous comment)

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  • http://www.texasholdeminvesting.com Masked Financier

    I love poker analogies to investing (just like Fred Wilson!).
    It looks like while Yahoo had the better hole cards (a big
    head start and huge audience), the flop favoured Google
    (the web got really big) and Google bet well (invested sweat
    and money on better search technology). However, the turn
    and the river are yet to come between these two, and let’s
    not forget the other player at the table, who came along
    with a gigantic stack and hasn’t played too well so far but
    hasn’t mucked its cards yet…
    – Microsoft. We should keep watching this game!

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