Roundtable on Yahoo minus Microsoft: Who wins for losing?

By Scott M. Fulton, III, BetaNews

May 5, 2008, 7:28 PM

(continued from previous page)

Burst Media's Jarvis Coffin disagrees with Levy's conclusion that Microsoft has to buy something at this point to do something. From Coffin's perspective, the failure of the Yahoo deal offers Microsoft a fresh new opportunity.

"For as long as Microsoft allows Google to represent what it wants to be when it grows up, as the bulls-eye in its Internet strategy, I think they'll drive themselves insane," Coffin told BetaNews. "I think they have to figure out what they can be better at and what they can be different at, and I'm not sure they're going to be better at or different from Google in the area of search marketing. I think that race has been run, and I think it's been won, and I think Google is a smart company. I think they'll continue to execute well, and it'll be very hard to knock them off."

Microsoft now has the opportunity, Coffin believes, to use the assets it's already acquired -- including last year's acquisition of ad platform provider aQuantive -- to assemble an entirely new kind of system that earns revenue for the company using a new model that doesn't resemble Google's or Yahoo's or anyone else's. It wouldn't start with search, where Microsoft doesn't have a chance to ever completely catch up with Google, Coffin believes.

"The part that's been hidden from view for years has been the abundance, the super-abundance, of Web sites and Web destinations that -- with the exception of a bunch of AdSense banners and some punch-the-monkey banners -- have yet to be harvested for the real value that exists between them and their users," said Coffin. That's starting to change...in the market today, and I think Google gets that because I think that's one of the reasons they bought DoubleClick -- they want to turn their network into a display franchise. I think AOL understands that with its Platform-A franchise. And I think Microsoft should be thinking ahead, and instead of trying to play catch-up in the search universe, it should rely on its technology tools that it's got, its ad network tools that exist, [and] trying to move in the direction of harvesting all of that content and thinking about ways they can use their desktop franchise to build the Microsoft network of the future."

"I think Microsoft dodged a bullet here in terms of this deal...I think that it was never clear to me...what they were going to get buying Yahoo except bragging rights, more tonnage, and a larger share of the search market." Jarvis Coffin, CEO, Burst Media

"Microsoft has to think about something else; I'm not sure what that something else is," stated Matt Rosoff, lead analyst for a firm that usually has the edge on direction: Directions on Microsoft.

Rosoff believes Microsoft's strategy to date, leveraging its Windows and Office brands as it moves into the online services space, has been smart. It gives a transition path for its customers as the world moves away from the installed desktop software model. But monetization remains the problem: Just how long can the company go on, he asked, producing tools for advertisers to measure performance. Does it want to be in the tools business forever?

"Maybe it would make more sense for Microsoft to really focus on the Windows Live services that it needs to boost Windows, and selling tools and services to advertisers and publishers of all sizes," Rosoff told BetaNews. "The trouble with that is, today, online services business, most of their money is coming from first-parties, from them selling advertising. Long-term, they might try to really build up the aQuantive business and, I wouldn't say scale back, but stop spending so much on the first party side of the business.

"If you're Microsoft, and you believe that a lot of the money that's going to other forms of advertising is going to move online over the next three or four years, and you believe that you should be able to capture part of that money, and you believe the best way to capture part of that money is by being a big publisher, amassing a lot of eyeballs and a lot of users and a lot of inventory to sell ads on, then you need something, because MSN isn't growing organically fast enough."

"They may decide that there's ways to be a player in [the online space]," stated Michael Gartenberg, "but they won't be the dominant player [even though] they can be a strong player."

Too much of what's happening in the online space is a threat to Microsoft's core business model, Gartenberg believes, so it can't afford not to make a move in this space.

"I think they think they have all the technology in-house that they need; the problem is that, they don't have enough users. They feel that they're not growing organically fast enough." Matt Rosoff, lead analyst, Directions on Microsoft

"It's not uncommon for Microsoft to be investing and trying new things, and taking stake in new things. Their current strategy clearly isn't working. The problem is, when you define yourself by saying, 'What we were doing wasn't working, therefore we felt the need to make this Yahoo acquisition...' then you don't acquire Yahoo, then you're saying... what are you going to do? That's the question Ballmer's going to have to answer."

"The fact that Microsoft made a play for Yahoo in the first place was a tacit admission that it couldn't do it on its own," agrees AR Communications' Carmi Levy, "that it couldn't evolve itself back into online relevance by simply self-generating the technologies and the product, and without an acquisition.

"So now that the deal has not gone forward, and Microsoft has basically put a stake in the ground, and said, 'We're going after Yahoo,' and now that the deal isn't apparently going to happen at this point in time, it's very difficult for Microsoft to backtrack and say, with a straight face and have the shareholders believe it as it says it, that it can now do it alone," Levy continued. "Microsoft's already gone on record in a very big way saying it can't do it alone. That hasn't changed just because they couldn't consummate the deal with Yahoo. So yea, shareholders are holding their breath and waiting for Microsoft to let them know what Plan B is. That Plan B will, in all likelihood, include an acquisition or a number of acquisitions that will allow Microsoft to get to the same place it envisioned itself getting to with Yahoo."

It isn't assets or ideas or technology that Microsoft really lacks at this point, Matt Rosoff believes. It's eyeballs; and if the company can't acquire them the old fashioned way, he believes there are many alternatives, some which might not even require an outright acquisition.

"I think they think they have all the technology in-house that they need," Rosoff said about the company he covers for a living. "The problem is that, they don't have enough users. They feel that they're not growing organically fast enough. So they need users, they need inventory, and...if they signed a deal with AOL, IAC, or a bunch of other companies where they're all using the Microsoft advertising platform, then advertisers would have two choices: They could go to Google/DoubleClick or Microsoft/aQuantive. I still think that would be their online strategy; I don't think they're looking for the next big brain idea.

"I think they feel like, if there's going to be a next big thing, Microsoft has as good a chance as anybody else out there," remarked Rosoff. "They missed search, but they're committed to not missing whatever the next thing is."