Microsoft-Yahoo: The deal of the dinos

(Crossposted from Comment is Free, where there are also comments.)

Yahoo, I’ve long argued, is the last old media company, for it operates on the old-media model: It owns or controls content, markets to bring audience in, then bombards us with ads until we leave. Contrast that with Google, which comes to us with its ads and content and tools, all of which I can distribute on my blog. Yahoo, like media before it, is centralized. Google is distributed.

It’s appropriate, then, that Yahoo is being bought by what one could say is the last old technology company, Microsoft. For Microsoft still operates on a model of control: closed in an open era. They will get along well together.

This is not a deal about content. At an entrepreneurial conference in New York this week, OnMedia, a venture capitalist said that the “perceived value of content is approaching zero.” That’s a kick in the kidneys to us content people.

No, this is a deal about audience and advertising. After the big guys consolidated all the ad networks they could — aQuantive to Microsoft, Tacoda to AOL, Doubleclick to Google (the EU willing) — next they’re buying up audience in bulk. That’s what Yahoo is, really. They call it a firehose: people in bulk, us as masses.

The reason this is happening is that advertisers and their agencies are still stupidly treating and buying us as masses — they want everything to operate like the one medium they understand: TV. (This is why, in the U.S., even as television’s audience shrinks, the rates paid for advertising continue to increase — because, oddly, the decrease in audience is creating a market scarcity in commercials’ reach).

This is just as well for Yahoo, which had no strategy, really. They’d gone as far as they could with the old-media model, as exploited by the last CEO, former movie-studio head Terry Semel. Yahoo cofounder Jerry Yang started saying the right things about turning Yahoo into a platform, but it probably would have taken years to turn his culture around. They were too used to operating like a movie studio or publishing house.

Will this be big enough to beat Google? No, because big won’t win in the end. Open will.

  • paul

    Great post Jeff…

    I was on the conference call from Microsoft this morning, but they only answered questions from financial annalists. I wanted to ask about the cultural differences, I believe the best and brightest Yahoo talent will take the money and run, so much for all the synergies.

  • Terry Heaton

    Any time you hear the words “reach” or “scale” in describing a media deal, you are hearing the cry of those on a beeline to the tar pits, driven by the scent of food.

  • Seamus McCauley

    The best and most perceptive few paragraphs I’ve read today on the deal. Thanks Jeff.

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  • shawnpetriw

    I just started using flickr in a big way. Now I’ll see M$ screw it up. What a shame.

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  • Bob Warfield

    I could not agree more and wrote something very similar on my blog.



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  • Joshua Karthik

    The LA Times article on the merger notes:
    “To make this really sing, you’ve got to have a person at the helm who’s a truly visionary leader,” said Gartner Group analyst Allen Weiner. “I don’t see that person at either company right now.” Couldn’t agree more. The only way forward for Microhoo, if it happens, will be to reinvent themselves from the ground up.
    Great post, Jeff!

  • robertdfeinman

    I think this is a misreading of the information landscape. Of course business is focused on revenue and content is just the bait to attract eyeballs, but information is not the same as cornflakes.

    Information is what keeps a society informed and (hopefully) prevents the creation of an oligopoly or plutocracy. Notice that one of the first steps of dictatorial regimes is to shut down sources of information: broadcast stations, cell phone communications and internet access. This is what happened recently in Burma and people still don’t know the story of the crackdown.

    Google is not a “portal”, it is a filter. People recognize when the filtering is done in a heavy handed manner as in China, but with Google now having over 60% of the worldwide search market anything it does to shape access can have profound repercussions. A simple mis-indexing can cause a site to “disappear”. Their ranking system has also been the source of much discussion and game playing. Much of this has been for commercial advantage, but attempts at “Google bombing” have had political motivations.

    What happens when there are only two search engines and they are told to suppress certain information from appearing in responses to searches? The ease with which the telecom companies went along with wiretapping requests from the government gives a hint of how much resistance the search firms are likely to put up when told to censor for “national security” reasons.

    Democracy cannot function without a free flow of information, having two “portals” is not a good way to ensure this.

  • Alan Wilensky

    Number of layoff’s to increase if MS completes the acquisition, perhaps up to 5k of fat. And yes, the motive force that powered the hope of many ‘little engines that could’, will dry right the heck up.

    Everything about Yahoo’s mid-level technology leadership was right in place. They had vision, enthusiasm, and the kind of sunny optimism that you need in a valley where suits block the tracks.

    Everything, almost to a ‘T’, was the fault of a management gone awry. Shame on you Semel, Decker, and Yang for destroying one the Internet’s august properties and feeding to the lions.

  • Robert

    What about Flickr, or any number of other services that are owned by yahoo but run independently of the larger site.

    I agree that their are things that yahoo doesn’t do very well, but they do some thing very very well that I would hate for MS to get their hands on and mess with. . . .

  • Soniac

    Great post. Integration will be the final nail….

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  • Vincent

    Either Microsoft has lost its corporate mind, or they are very clever and this is just a red herring.

    Buying Yahoo would be a very big headache for Microsoft:

    – Cultural differences – most of the staff don’t like Microsoft and most of the time have spoken against them

    – As far as I know, none of Yahoo runs Microsoft software for it’s applications or server management.

    – Backlash of large amount of Yahoo users WILL move (to Google?).

    Why a red herring? To force someone else to bid and pay over the odds for a troubled darling of the Internet. Thus weakening the competition (both the acquirer and Yahoo themselves due to the necessary focus on the takeover operations), and at the same time removing large amounts of available funds from development of more ‘anti-Microsoft’ solutions.

    Great tactics worthy of any scholar of SUN TSU – The Art of War.

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  • PIerre Little

    I think you are totally wrong on this. Open will do one thing. Bankrupt legitimate businesses that are based on intellectual property rights.

    The problem is not to embrace open networks as the holy grail. The issue is that the world has gone absolutely crazy with free content online. Why? Because they perceive the revenue model being advertising based and not content based.

    The reason for the problem of content not being salable is the lack on innovative tools to make a seemless transaction that is not intrusive to the experience of the consumption of said content.

    Remember, ISPs are collecting fees for content at present whether we accept this concept or not by giving access. It make no sense at all that a distributed network be any different then the real marketplace in your town or mine, unless we all agree to live in some utopia where money and income fulfill intrinsic need to survive in a market economy of consumption.

    The whole system will correct itself, believe me. Its inevitable.

  • James

    All of you have brought up good points worth consideration.

    MSFT’s desire to acquire Yahoo displays a lack of imagination. They will never beat Google at their game. Google is too deeply entrenched as the “go-to” search engine in the present format of search. What MSFT needs to do is change the game. MSFT… don’t by an ice truck company… invent the refrigerator. Is there someone from MSFT whom I could contact to discuss my ideas?

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