Microsoft and Yahoo: the pros and cons

Our media strategies editor takes a look at Microsoft’s bid for Yahoo and what this could mean for the online media industry.

The announcement last week of Microsoft’s unsolicited bid for Yahoo hit the newswires, the industry and the press like the late Orson Wells doing cannonball into an Oscar party punch bowl.

The $44.6 billion offer, in both cash and stock, was 62 percent higher than Yahoo’s stock price at the end of the last day of January. The announcement, naturally, brought Yahoo’s stock price up to levels commensurate with that of the punch bowl mentioned above, once Mr. Wells is in it.

But before too much champagne is uncorked — or too many hands are wrung bloody with worry — we should all remember that it will likely be some time before such a merger would be approved by the FTC, and it looks as if Google has already decided to come forward to play a lead role as spoiler of the deal declaring, among other things, that it could prove to hinder competition in the market place.

While this kind of response from Google (given its position in the marketplace) makes one smile painfully at the corner of one’s mouth, it isn’t an entirely illegitimate claim, and it is one that the decision makers will ponder for some time.

Is this a good move for Microsoft? Is this a good move for those of us in the business? If either party has Yahoo stock, the answer is yes. Yahoo stock has been relatively undervalued for some time, and Jerry Yang being the public figure running the company can’t be the answer for Yahoo if it wasn’t the answer before. Having Jerry Yang come back would be like the hiring back Don Chaney to the Knicks in the hopes of having a winning season.

From a business perspective and as a stockholder, which I am not, Yahoo getting bought by ANYONE would be a good idea. The new company could be a source of direction and focus that has been lacking nearly since the end of the last dot-com craze.  From the media planning and buying perspective, there are both a few pros and cons to the deal.

Pros:
1. Yahoo’s targeting capabilities, married to Atlas’ serving technology, and plugged into Drive PM’s vast network, could make for a display advertising network that delivers more appropriate advertising to larger audiences on a scale that only Google currently has through its search product.

Using the same kinds of algorithm-based intelligence to parse user profiles and click streams combined with the content elements of specific web pages viewed, the MicroHoo entity could be immensely powerful. As online continues to be a contest between methods of advertising based on engagement and analytics-driven targeting, an entity like MicroHoo can compete. Ostensibly selling access to online users instead of basic placement of ad inventory will require the kind of powerful analytics a Yahoo and Microsoft combined would be capable of. Deploying such analytics meaningfully requires populations of hundreds of millions of online users.

2. Two online media companies with tons of remnant inventory means one company with more remnant inventory than any online media company on earth. This means that direct response advertisers and companies that facilitate their needs will have more carrion upon which to feed. Drive PM, Blue Lithium and Right Media are only going to be able to move so much of this stuff. There will be plenty of inventory for a plethora of drovers to make a living, and that will be good for the economy of the business.

Cons:
1. A loss of pricing flexibility. I don’t care what anyone says: whenever a company, organization or government tells you that economies of scale will mean savings for the consumer, they are lying to you (unless it’s Wal-Mart). When two of the biggest destinations for ad dollars become one, do you really think CPMs are going to either A) go down or B) become more negotiable? Not a chance.

2. There are good sales representatives in even the worst organizations. But it has been my experience — and several others, from what I’ve heard anecdotally over the years — that both MSN and Yahoo have “challenging” bedside manners. When the two companies merge, will that simply mean exponential arrogance? Will this mean more calls and emails that, when executed with the spirit of negotiation as their intent, are replied to with the Heisman strong-arm? Or, as is often the case, no response at all? Will this mean even more RFPs that have included oodles of Hotmail and Yahoo Mail inventory priced at medical journal CPMs, when all you asked for was a contextually relevant buy?

3. Microsoft is a technology company. As such, sales and marketing are not in its DNA. This means that the disciplines will always be treated, top-down, as something inferior to the core concerns of the company. This will eventually permeate the entire combined company and result in one giant technology/software company rather than a media company, with a lot of disenfranchised and demoralized sales/marketing/advertising personnel. And maybe that’s what Microsoft really wants, to merely extend its software holdings into the virtual realm and simply be an even bigger software company. But if it wants to be a media company, it is going to be tough.

4. No more choice. I know that Coke and Pepsi aren’t really THAT different from one another — Coke is a little fizzier; Pepsi a little sweeter. But they are different enough, and their respective consumers think they are different enough to prefer one over the other. While years of branding have contributed to this more significantly than you might realize, what matters is that the consumer has a choice. If Yahoo and MSN are merged into one, do I really end up with choice anymore? It isn’t like a magazine publishing company that has a variety of content verticals for the marketplace to choose from. These are currently two companies that both pretty much bring the same thing to the marketplace, and those in the marketplace, for whatever reason, have chosen one over the other. This will no longer be the case.

And what about media buyers? Will they be able to specify what they want on one portal versus another? Will they be able to pit one against the other as a means of extracting value and service? I really can’t say, but it isn’t likely.

Consolidation in business should come as no surprise to anyone. But Microsoft is still in the process of swallowing aQuantive, let alone digesting it, and we haven’t even begun to see what the fall-out from that is.

By Jim Meskauskas