How Yahoo Blew It

[Barefootsies]

Terry Semel was pissed. The Yahoo CEO had offered to buy Google for roughly $3 billion, but the young Internet search firm wasn't interested. Once upon a time, Google's founders had come to Yahoo for an infusion of cash; now they were turning up their noses at what Semel believed was a perfectly reasonable offer. Worse, Semel's lieutenants were telling him that, in fact, Google was probably worth at least $5 billion.

This was way back in the summer of 2002, two years before Google went public. An age before Google's stock soared above $500 a share, giving the company a market value of $147 billion -- right behind Chevron and just ahead of Intel.

As Semel and his top staff sat around the table in a corporate conference room named after a Ben & Jerry's ice cream flavor (Phish Food), $5 billion sounded unacceptably high. Google's revenue stood at a measly $240 million a year. Yahoo's was about $837 million. And yet, with Yahoo's stock price still hovering at a bubble-busted $7 a share, a $5 billion purchase price would essentially mean that Yahoo would have to spend its entire market value to swing the deal. It would be a merger of equals, not a purchase.

Terry Semel -- a legendary Hollywood dealmaker, a guy who didn't even use email -- had not come to Silicon Valley to meekly merge with the geeky boys of Google. He had come to turn Yahoo into the next great media giant. Which might explain why the face of the famously serene CEO was slowly turning the color of Yahoo's purple logo, exclamation point included. "Five billion dollars, 7 billion, 10 billion. I don't know what they're really worth -- and you don't either," he told his staff. "There's no fucking way we're going to do this!"

Semel could talk tough because he had a backup plan. Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel's decision to opt for this plan B was a fateful one. It was a smart play -- but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year. It's these ads that are the source of Google's riches and the basis for its expanding power.

And what must infuriate Semel: This could have been Yahoo.

Under Semel, Yahoo extended its depth and global reach, but it still couldn't compete against Google.

Laid low by the tech crash, Yahoo brought in Semel in May 2001, when the company was at its nadir. It rebounded spectacularly under his leadership, but 2006 -- a year expected by many to be Yahoo's best -- turned out dismally. Brand-advertising growth fell by half, while Yahoo's share of search-related advertising dropped from 32 to 24 percent, according to Piper Jaffray. (During the same period, Google's edged up from 64 to 68 percent.) Analysts at Morgan Stanley predicted that operating profits at Yahoo would fall by 20 percent. (Final 2006 results had not posted by press time.) "It's now a given among advertisers that Google has won the search game," says Jeff Lanctot, vice president of media for Internet ad firm Avenue A Razorfish. No wonder Yahoo's share price fell 36 percent last year.

Story continued on

http://www.wired.com/news/wiredmag/0...l?tw=rss.index

[interracialtoons]

Originally Posted by Barefootsies

Terry Semel was pissed. The Yahoo CEO had offered to buy Google for roughly $3 billion, but the young Internet search firm wasn't interested. Once upon a time, Google's founders had come to Yahoo for an infusion of cash; now they were turning up their noses at what Semel believed was a perfectly reasonable offer. Worse, Semel's lieutenants were telling him that, in fact, Google was probably worth at least $5 billion.

This was way back in the summer of 2002, two years before Google went public. An age before Google's stock soared above $500 a share, giving the company a market value of $147 billion -- right behind Chevron and just ahead of Intel.

As Semel and his top staff sat around the table in a corporate conference room named after a Ben & Jerry's ice cream flavor (Phish Food), $5 billion sounded unacceptably high. Google's revenue stood at a measly $240 million a year. Yahoo's was about $837 million. And yet, with Yahoo's stock price still hovering at a bubble-busted $7 a share, a $5 billion purchase price would essentially mean that Yahoo would have to spend its entire market value to swing the deal. It would be a merger of equals, not a purchase.

Terry Semel -- a legendary Hollywood dealmaker, a guy who didn't even use email -- had not come to Silicon Valley to meekly merge with the geeky boys of Google. He had come to turn Yahoo into the next great media giant. Which might explain why the face of the famously serene CEO was slowly turning the color of Yahoo's purple logo, exclamation point included. "Five billion dollars, 7 billion, 10 billion. I don't know what they're really worth -- and you don't either," he told his staff. "There's no fucking way we're going to do this!"

Semel could talk tough because he had a backup plan. Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel's decision to opt for this plan B was a fateful one. It was a smart play -- but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year. It's these ads that are the source of Google's riches and the basis for its expanding power.

And what must infuriate Semel: This could have been Yahoo.

Under Semel, Yahoo extended its depth and global reach, but it still couldn't compete against Google.

Laid low by the tech crash, Yahoo brought in Semel in May 2001, when the company was at its nadir. It rebounded spectacularly under his leadership, but 2006 -- a year expected by many to be Yahoo's best -- turned out dismally. Brand-advertising growth fell by half, while Yahoo's share of search-related advertising dropped from 32 to 24 percent, according to Piper Jaffray. (During the same period, Google's edged up from 64 to 68 percent.) Analysts at Morgan Stanley predicted that operating profits at Yahoo would fall by 20 percent. (Final 2006 results had not posted by press time.) "It's now a given among advertisers that Google has won the search game," says Jeff Lanctot, vice president of media for Internet ad firm Avenue A Razorfish. No wonder Yahoo's share price fell 36 percent last year.

Story continued on

http://www.wired.com/news/wiredmag/0...l?tw=rss.index

I disagree.

A $5 billion purchase by Yahoo at that time was just not safe business.

There would have been no guarantee that the "brains" at google would have remained after the purchase and they would be sitting exactly where they are now with a $5 billion bill over there heads.

Yahoo's biggest mistake was to start charging for listings in it's directory.
If Yahoo had spent big money over the years to hire directory reviewers they would have a directory that would eclipse the accuracy of google.

There would be no Wikipedia...it would have been on Yahoo.

Go to Yahoo now and see if there is a link to the actual directory...I didn't see on the last time I looked.

The directory made yahoo number one and they blew it when they ran away 1000's of content contributers by trying to charge for a listing.

They were charging $600 for a stupid text link when youtube will upload and broadcast a 10 MB video for free.

They fucked up by trying to make money in the wrong direction; by getting it from their "content providers".

[Rochard]

Originally Posted by interracialtoons

I disagree.

A $5 billion purchase by Yahoo at that time was just not safe business.

There would have been no guarantee that the "brains" at google would have remained after the purchase and they would be sitting exactly where they are now with a $5 billion bill over there heads.

Yahoo's biggest mistake was to start charging for listings in it's directory.
If Yahoo had spent big money over the years to hire directory reviewers they would have a directory that would eclipse the accuracy of google.

There would be no Wikipedia...it would have been on Yahoo.

Go to Yahoo now and see if there is a link to the actual directory...I didn't see on the last time I looked.

The directory made yahoo number one and they blew it when they ran away 1000's of content contributers by trying to charge for a listing.

They were charging $600 for a stupid text link when youtube will upload and broadcast a 10 MB video for free.

They fucked up by trying to make money in the wrong direction; by getting it from their "content providers".

I agree. Who in their right mind would have paid billions for a company that barely made $200million a year? Even if Yahoo did buy Google, no one knows how it would have went. It could have been a huge failure that could have wiped out both Yahoo and Google.

This kind of thinking went out directly after the dot com crash.

[vvq]

i still think ppc advertising is gonna fall through. asside from all the fraud i think a lot of internet surfers just become conditioned to them. i look right past google ads because i'm so used to seeing them everywhere. and people know the site owners are making money off them. if you like a site and want to support it, you just click their google ad. i've done it myself. we all know content network traffic is absolute shit. i just don't like the adsense/adwords model. Google is like the middle man while one side defrauds the other and Google collects/pays out so it looks like everything is ok. that's my 2 cents.

[MintCams]

Originally Posted by vvq

i still think ppc advertising is gonna fall through. asside from all the fraud i think a lot of internet surfers just become conditioned to them. i look right past google ads because i'm so used to seeing them everywhere. and people know the site owners are making money off them. if you like a site and want to support it, you just click their google ad. i've done it myself. we all know content network traffic is absolute shit. i just don't like the adsense/adwords model. Google is like the middle man while one side defrauds the other and Google collects/pays out so it looks like everything is ok. that's my 2 cents.

When I am looking to buy something, I give extra credibility to the companies that purchase the ads. If I am looking for info then organic is the way I usaually go.

[interracialtoons]

Originally Posted by vvq

i still think ppc advertising is gonna fall through. asside from all the fraud i think a lot of internet surfers just become conditioned to them. i look right past google ads because i'm so used to seeing them everywhere. and people know the site owners are making money off them. if you like a site and want to support it, you just click their google ad. i've done it myself. we all know content network traffic is absolute shit. i just don't like the adsense/adwords model. Google is like the middle man while one side defrauds the other and Google collects/pays out so it looks like everything is ok. that's my 2 cents.

Diminished? Could happen...fall thru...probably not.

Television would have already fallen thru on the premise that people aren't
paying attention.

if you like a site and want to support it, you just click their google ad. i've done it myself.

And the advertiser thinks, "yeah we got some of our message to him no matter how little". If you saw their logo, they count that too.


We tend to think about porn too much here in that if we don't get sign ups then the traffic is no good. Other industries are not doing things this way.

Big Corps are spending millions of dollars to put their image on a race car.
They dont get sign ups from that, they get "Branding".
Branding is where the big money is.

From that angle corps dont even give a shit if you click on the google ad just as long as you saw their name, slogan, price or whatever on the webpage.

If PPC drops then google can just replace the ads with small "non-clickable" icons from IBM, Coke, Pepsi...etc and make just as much.
They would probaby make the icons clickable to load a video commercial and score even bigger.