07 February 2008

Microsoft's bid for Yahoo!

If you hitch one blind man to another, will they be able to figure out the way? Microsoft apparently believes they will. Or so it would seem from its unsolicited bid for Yahoo.

It's a strange belief. Anyone who does a fair bit of searching every day will know that neither Yahoo! nor Microsoft know much about search. Their skills in search are not complementary so it is not at all clear how buying Yahoo will help Microsoft at all.

If I were a Yahoo shareholder I would welcome the bid of course. My strategy would be to sell out for the combination of cash + Microsoft shares, and sell the Microsoft shares at the earliest opportunity. Its share price can only go down because the merger, if it goes through, could well be the biggest error in Microsoft's history. And the costliest too.

As a Yahoo employee, however, my strategy would be to forget about search and use Google as the default search engine on its site, which is of course what Yahoo was doing until February 2004, that is to say, just three years ago.

It might also not be a bad idea to use Google Adsense on all or most of Yahoo's pages, perhaps after wangling a deal so that Yahoo gets to keep 95% or so of the revenue. This is the right moment to push through such a deal because Google is anxious to keep Yahoo out of Microsoft's hands. But even here, Yahoo would need to reduce the clutter on its pages to give AdSense some chance of figuring out what ads are most suited to them.

Much has been written about Yahoo's Panama technology. It's my belief that it will be a failure because the click rate for ads on a page depends on how accurately the ads match the content of the page. Panama will fail for the same reason that Yahoo has failed in search, because matching ads to page content requires superior search technology.

Yahoo's present pathetic condition is saddening because at one time it was "the portal" to the Internet. But Internet lifespans are shorter than industrial lifespans. Look at Netscape, AOL, Altavista ...

Category: Search-Engines


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