Microsoft’s Yahoo! Offer Offers a “Partner Pause” Moment
Important Details: Only the timing was surprising. As Yahoo! CEO Jerry Yang left a board meeting last Thursday, he was told that Microsoft CEO Steve Ballmer was on the line (the phone line, not the internet) with a buyout offer. Microsoft and Yahoo! had held talks on and off for a while on a possible acquisition or investment. Microsoft’s offer though was a “hostile” one, with Ballmer making clear that he intended to see it completed with or without the active cooperation of Yahoo! management. We’ll learn more this week about the offer, and about other bidders and strategic players (apparently both News Corp and Google are among them) who may join in the action. But for the many companies who deal with Yahoo! (“partners” in internet parlance) the deal portends sizable impacts on their own businesses as well.
Prominent among these is the US newspaper industry. Since a core group of 12 medium-sized US newspaper companies announced an unprecedented “consortium” with Yahoo! last spring, an increasingly proportion of the industry has bet more and more of its future on Yahoo!, its technology, its audience — and its leadership. Today, 22 newspaper chains are part of the consortium. More than 500 individual newspaper titles — in disproportionately larger markets — out of 1500+ dailies are part of the effort.
The potential scope of the consortium has grown as well, as partners have gotten more comfortable with each other. In its first phase, the consortium has focused on the recruitment vertical, with jobs listings and matching still a major source of revenue for both newspapers and Yahoo!, the latter through its HotJobs product. Newspapers’ integration with Yahoo! on using the HotJobs platform and in cross-selling is well underway, and some newspaper groups have reported a good resulting boost in revenue as they are able to offer local advertisers greater reach. In the next phase, the consortium looks to actively increase the traffic to local sites, through providing preferential placement of member news stories in Yahoo! News, and to increase revenue through several kinds of ad integration/sales programs. Those integrations are in various states of progress.
Implications: How would a “MicroHoo merger” affect the consortium? As the question winds through the news industry this week, you’ll hear great optimism and great pessimism. The consortium could benefit from a much greater potential audience reach and strengthened ad technology and sales systems. It could also find itself low on the priority list, as one behemoth tries to make sense of another.
Outsell believes the realist position, between optimism and pessimism, is in order. Realistically, there’s no way to know whether the deal will get done. But if it proceeds, and with Yahoo!’s weakness, it seems like some reckoning of the company’s future is more likely than not, then it is likely that change means delay. Yahoo! may indeed decide not to deal with Microsoft, but to outsource search-based sales to Google, for instance. No doubt, there are dozens of other possible permuations.
For Yahoo!’s newspaper partners, the problem is time. Sorting out takes time. A sale or new strategic alliance would take time. Integration takes lots of time. Time’s always a business issue, but for newspapers seeing Yahoo! as a lifeline to new digital revenue to make up for lost print revenue, it’s a particular problem. Delay is the enemy of newspaper industry.
This doesn’t mean that the newspaper industry was wrong to partner with Yahoo!. The industry has long needed to look outside itself for greater audience, better technology and more innovative approaches to performance-based ad selling. The problem lies in betting too much on Yahoo!.
The consortium — so far, Outsell hastens to add — has been more a Yahoo! consortium than a newspaper consortium. If it were, or were to become, a newspaper consortium, it would build on the principles that built the consortium – the ability to compromise, to plan and to execute jointly. And then it would apply those priniciples more broadly, reaching out into the internet world to achieve economy-of-scale, faster-to-market group partnerships in everything from social publishing plays to SEO and SEM to a state-of-the-art platform that could serve the growing business. It could move faster and spend less precious capital.
So the “partnership pause” should be one of stepping back, seeing what’s been done right and what can be applied. Yahoo! may have been the chosen partner because, in the words of one consortium exec, “they’re the ones that wanted to dance with us,” but there are plenty of other worthy catches out there. Some are shy, some are hard-to-get, but this is no time to retire from the dancefloor.