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A Memo That Clarifies the Microsoft Yahoo bid

A couple of people were on the news call and say they were underwhelmed by Steve Ballmer’s explanations of why this deal now. It may be that he just isn’t fully apprised of the details- he has a few businesses to run, right? One guy that surely is down in the weeds is Brian McAndrews, who Microsoft brought in when they acquired the aQuantive ad platform.

I was going to blog about an intriguing memo I got from Brian today, anyway, especially in the light of Google’s poor yield management in buying social media space for its ads. Google just missed expectations because it is paying too much for traffic.

Same day I get this from McAndrews:

“While search has been the main driver of the blistering growth of online advertising in the past, at least partially because of the “last ad clicked” performance measurement standard (pioneered by Atlas in the late 90s), we do not believe this will necessarily be the case in the coming years. The current system for tracking ad conversions , while the best available for years, is not optimal because it gives all credit to that last ad seen or clicked – often a search engine – and not any credit to other ad units the consumer may have seen prior that helped influence the user to seek more information about the advertiser. Thus, Search has gotten more than its share of the credit, but that’s starting to change. We’ll be making significant inroads here in 2008 through our continuing ground-breaking work in the area of “conversion attribution,” a new Atlas technology offering that will do a better job of “giving credit where credit is due.”

That said, we’re not discounting the importance of Search as it continues to drive a lion’s share of digital advertising budgets. Our goal is to help advertisers and agencies make their Search campaigns as relevant, targeted and highly converting as possible. We’ve made great strides toward this end, and will continue to make deep investments in both our Live Search engine and Microsoft adCenter to improve the value of our Search offerings for customers.

The context of the search is far more valuable than the search itself. I have spoken before about the via: via: economy – word of mouth referrals in the delicious age. That is what Microsoft is buying into and planning to build upon. They should obviously jump in for Twitter right now, but there you go.

We’re talking about declarative living and tag gardening. That’s what Microsoft is buying. The future.

I think GOOG is now likely to go in for Facebook and now we have a game on our hands.

One final point. Yahoo is not very good at developer marketing. Microsoft is world-leading on that score. Put Microsoft evangelism behind Yahoo, with an injection of web DNA, and the results could be really sweet. If Microsoft has any sense they will be lining up Jon Udell as chief evangelist right now.

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14 Responses

  1. Great point!

    While Yahoo don’t have very good developer marketing, they do have some amazing developer products. The Jewel in Microsoft’s Crown may well turn out to be a Visual Studio integrated with Yahoo’s excellent web based APIs…

    Where does the FAST acquisition tie into this mess? Microsoft would have more search providers than they could possibly use…

  2. xcellent insight. I like the way you say it..

    “Put Microsoft evangelism behind Yahoo, with an injection of web DNA, and the results could be really sweet”

    I wonder what ask and google will do now.. !!

  3. All GOOG needs to do is buy Experian and Ebay. Slam dunk.

  4. Hi James

    Language like “conversion attribution” indicates to me a complete misunderstanding of the ways things are moving, that is language of the previous era.

    Goog buying Facebook sorry wrong DNA, body would reject that tissue surely.

    M$ buying yhoo will probably strengthen Goog’s hand (certainly inthe short term). It will probably destroy more than it creates, not to mention the short term carnage for yhoo services.

    But then yhoo is fsck’d anyhow..

    regards
    Al

    regards
    Al

  5. @gordon: visual studio is the abomination of web development, and any integration would demean Y!’s offerings.

  6. Microsoft is offering 44 Billion dollars for the yahoo.com domain name.

    Why?

    Remember back in the ancient days when Microsoft bought hotmail. What did it buy? A domain name that people already used. Microsoft slowly converted all the non-windows technology at hotmail.com into windows stuff. Eventually, the hotmail.com domain redirected to live.com.

    You want me to make an educated guess about what’s going to happen to the php/FreeBSD that yahoo has built? It will all be slowly upgraded to windows technology, and eventually, when people don’t notice (because they’ve stopped caring–in 2015 or so), it will redirect to something else.

    In the meantime, they actually have all the yahoo traffic to milk for advertising (see: http://alexa.com/site/ds/top_500). Ultimately, they want to convert the yahoo brand into the Microsoft brand.

    Yahoo won’t have the muscle to resist, because that’s what the 44 billion gets microsoft: the means to convert the top brand on the web today to Microsoft.
    Same will happen to all of yahoo sub brands (flickr and company). Because Microsoft is brand focused, not brand diluted. (see http://www.businessweek.com/pdfs/2007/0732_globalbrands.pdf – Microsoft is #2 after Coca Cola, worldwide)

    Microsoft is a marketing company that sells the products it develops and acquires by branding the products with the Microsoft logo and Good Name, and collects profit based essentially on the markup of the brand name. Granted, they have some outstanding products, but they would do a lot more poorly if they weren’t marketed and sold under the aegis of the Microsoft brand.

    As far as developing the “social network”, it’s not in Microsoft’s best interest to do so. Social sites are generally very hard to control. There’s all sorts of unsavory contents that members post. Microsoft is not interested in having its premier business brand associated with teenage hooliganism and youtubish immaturities. Check out Obama Girl on youtube if you haven’t already–she’s great, and there’s a lot of socio-political value to her message–Yes Mr Dylan, the Times, they are A’changin–but you can hardly imagine this appearing on microsoft.com.

    Remember this about microsoft: they will protect their brand. Yahoo was one of the tamer web properties out there, got a lot of traffic, and has a fairly good brand (when’s the last time Yahoo was involved in a public scandal?)

    As far as google buying facebook. I don’t see it. I think Google buying Sun Microsystems would make more sense (remember MySQL) and they probably could get it for $16 billion (on today’s JAVA market cap $13.85B). With Java the language, mySQL, OpenSolaris, and great hardware/software engineers, SMI would be a great value to Google. I think it would also be really good for Sun because Google management would probably clean house in Sun’s management.

    As far as Al’s comment: indeed, Yahoo is fubared long term. Taking Microsoft’s money is a good escape strategy.

    On the “Search is not going to be the same kind of advertising revenue generator in the future” thing, I agree. There are much better tools for affinity linkages, such as feeds and–dare I say it–Social networks. Although, to be honest, when I’m searching for something on the web, and I’m feeling lost in a sea of millions of results, and I’m scanning every word on the page in the hope of finding something remotely like what I think I’m looking for, I am much more likely to linger upon some semi-relevant advertising than if I’m at my friend Chihiro’s facebook page. Because there, there’s actual content that I want, and I completely ignore the ads. Completely. Because there’s very compelling, personal content that satisfies my curiosity. (Let’s be honest: which is better, to find out your high school sweetheart is struggling with her 3 year old son Jason or the latest ad for a HP laptop?– I rest my case.)

    More and more the internet is becoming tightly woven into our lives. Less and less people will tolerate distractive advertising. You want advertising to be present when you and your spouse exchange sweet nothings on the sofa, a glass of good wine in hand? As the internet allows more and more intimate connection between people, the places that will attract this interaction best will feel cozy, warm, like your friend’s living room (livingroom.com is squattered btw) or the local pub where all your friends hang out, regardless of whether they’re feeling gloomy or cheery. This intimacy, this closeness between people is good. I wish all the people on this planet felt that they are part of a great big family, rather than pointing rifle barrels or rusty machetes at each other, and if this pseudo-intimacy social sites afford us can help us get along better and understand each other’s pain and struggles, then the internet would have been worth it. The thing is, I don’t see advertising as a facilitator of such social sites. Rather, it would hinder, because it depersonalizes the experience.

    Look at wikipedia. Isn’t it amazing that it does not display ads, and for all its faults, has managed to change the way people think of the internet and about collaboration in general?

    Oh my look at the time… I’ll sign off now.

  7. The context of the search is far more valuable than the search itself. I agree 100%, and in fact it is that context that is the reason Google is so successful at capturing ad revenue. They understand context because of the search.

    Context is also the reason I think Yahoo is not the best choice for Microsoft. Yahoo does not improve context for Microsoft in any way. They are an admittedly large but tactical acquisition of traffic. Because they are tactical, they will be subject to the same attrition Google has been winning with for years.

    Consider what might have been. The biggest, most contextually valuable, and strategic property Microsoft might have bid on is right in their own backyard.

    Google may yet buy this company, and if they do, it leaves Microsoft way back in the pack strategically.

    More here:

    http://smoothspan.wordpress.com/2008/02/04/microsoft-yahoo-the-only-counter-google-combination-that-makes-sense-the-force-is-strong-in-another-one/

    Best,

    BW

  8. Why would Google acquire Sun? All they’d get would be a bunch of proprietary software, and Google’s an open source company.

    but I can’t believe the DoJ will let the Yahoo!/MSFT hostile takeover proceed, it’s hugely anti-competitive.

    Harry ReevesFebruary 5, 2008 @ 7:10 amReply
  9. please play in the market for ria company now please



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Continuing the Discussion

  1. […] Out of the cloud and friends, John asks me about the possibility of Microsoft/Yahoo! now that Microsoft has an extended an offer to buy. I tell him the results of my Twitter poll, asking if people thought Microsoft would do right by flickr and del.icio.us. Pretty much everyone replied that they were worried that Microsoft would mess it up. I point out that it’d introduce a whole lot of new technology and cultures to Microsoft that Redmond wouldn’t have brought on itself otherwise: OpenID, LAMP-like stacks for hardware, and general non-Microsoft IT. (Also, see another RedMonk take from James Governor.) […]

  2. […] James Governor’s Monkchips » A Memo That Clarifies the Microsoft Yahoo bid Interesting blog post by James about MS/Yahoo acquisition. Especially like the memo from McAndrews that brings a bit of perspective (tags: yahoo microsoft) […]

  3. […] this week’s The Gang for more on the “Microhoo” topic. Also, RedMonk’s own James Governor hit up the developer angle quite well when it comes to Microsoft and […]

  4. […] this week’s The Gang for more on the “Microhoo” topic. Also, RedMonk’s own James Governor hit up the developer angle quite well when it comes to Microsoft and […]