Google could buy Yahoo to grab the most valuable online social graph that isn't being leveraged to its full potential. The Yahoo user base would do well in Google+.
It's tempting to sour on the idea of that
Google (NASDAQ:GOOG) would buy struggling Internet legacy Yahoo (NASDAQ:YHOO),
which is facing takeover rumors and other strategies in the wake of the
company's dismissal of Carol Bartz from the helm.
Let's back up a few years. Recall that
when
Google bid to work with Yahoo in June 2008, it
wasn't to buy the company warts and all-that was Microsoft's $45 billion bid that
could have been a sour poison pill.
What Google wanted to do was shoehorn
into Yahoo's search and contextually targeted advertising channel, negating any
chance Microsoft ever had of making a meaningful dent, let alone meaningful
dollars, in the search market.
The Justice Department said no and
blocked the deal, citing monopoly concerns.
Microsoft got the spoils the following summer: a 10-year
pact to propel Yahoo's search and ads, an effort to bolster its own
search share.
Yet Yahoo's struggles continued. It has
shaved off employees and technology assets and squandered acquisitions that
would have buoyed any other larger, fully functional Internet company. With
Bartz jettisoned after an ineffectual 30 months on the job, talk has turned to
the idea that Google or Microsoft could buy Yahoo.
Just two weeks ago,
Microsoft CEO Steve Ballmer candidly said he was
lucky the software giant didn't succeed in its bid, but of course the asking
price was a lot higher then. Yahoo's floundering brand, valuable mostly to
older Internet users with Yahoo Mail accounts that stretch back 15 years, has
suffered in the wake of Google, Facebook, Twitter and a phalanx of hot Web
startups.
Microsoft could buy the 15 or 16
percent search share from Yahoo and leverage its display advertising for
profit. Google could do the same, but it would highlight the Monopoly sign that
company wears in a grotesque neon hue.
It would be anathema to think that U.S.
and European regulators who are already scrutinizing Google for antitrust
practices in search could actually allow the company to buy Yahoo outright. But
let's say for the sake of Dr. Seussian wonderment that it did. What would
Google get?
IDC analyst Hadley Reynolds told
eWEEK Google could frustrate Microsoft's
search alliance with Yahoo, taking away that beachhead that Yahoo display
search ads offer. Yahoo had been the world's largest display ad provider until
Google supplanted it in the last couple quarters.
Google could cement its display ad
supremacy once and for all getting Yahoo and its ad clientele, which former
investor
Eric Jackson of Ironfire Capital noted is worth $2 billion a
year.
Moreover, Reynolds said that "if
Google were able to land Yahoo, it could give Google an interesting leap
forward in its troubled Pacific Rim strategy, particularly in China. "This
begs the question: Why would Google have pulled out of China itself if it now
intends to potentially acquire 40 percent of Alibaba?" Reynolds wondered.
Altimeter Group analyst Charlene Li
noted that apart from giving Google valuable access to Japan, Yahoo's massive
user base of over 500 million users could provide a built-in network for
Google+, the company's fledgling social network.
"Those people [Yahoo users] are
not socially network connected," Li said. "Google+ needs a boost.
Google doesn't have that user base. Google has much more of a utility
relationship with people, whereas Yahoo has a content relationship with
people."
This makes sense. Google+ has somewhere
between 40 and 50 million users, compared with over 800 million for Facebook.
If Google got Yahoo, it could port those users over to Google+ accounts. It
would be a Herculean undertaking and not just from a technical point of view.
How does a company being investigated
by two world power governments justify to loyal users that it is taking custody
of their Webmail, search and other Web service data? It might not be practical.
But the possibility of grabbing Yahoo's
built-in social graph is clearly too tempting for Google to ignore. Unless, of
course, Google is just playing its usual game of brinksmanship with Microsoft
to drive up the bidding price for Yahoo.
It happened before in 2008. It could
happen again heading into 2012.
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