Complaint: Yahoo Opposed to Outsourcing Search to Google

By Clint Boulton  |  Posted 2008-06-03 Print this article Print

Now that a Delaware court judge has unsealed the complaint in a shareholder lawsuit filed against Yahoo's board of directors, we can get an idea of just what the company was up to as it fought off Microsoft's unsolicited acquisition attempt.

The complaint is a thick 64 pages, featuring transcriptions of private phone calls and some tabloid-esque allegations of how Yahoo tried to throw "sand in the gears" of Microsoft's acquisition efforts. Read it here in full on the plaintiffs' attorneys' site. It's worth skimming for the gold nuggets.

The point I want to focus on here is Yahoo's apparent perception of Google's offer to run its ads alongside Yahoo's search. Let's not forget that these companies successfully tested this for two weeks back in April and have been rumored to be mulling a deal.

Yet amid financial analysts estimates that the deal would reap $1 billion-plus for Yahoo annually, Yahoo apparently was perturbed by the long-term affects of the deal.

According to the filing, CEO Jerry Yang previously rejected such an outsourcing deal after concluding that fostering its own search advertising business was critical to its long-term success. 

Well, duh. If you're an Internet company and you want to make money, search advertising is the way to go unless you're a successful SAAS provider such as

Yahoo showed us as much by announcing its next-generation ad platform AMP, which is supposed to do all the things that the big waste of time and money platform called Panama couldn't.

Ceding search and advertising share to market leader Google may reap some coin in the short term, but it will do nothing to cement and expand your position in the competitive market over the long haul, as the document notes: "Yang concluded that outsourcing the business to Yahoo's strongest competitor would undermine its ability to market its services as unique."

What's interesting is Yahoo's positive positioning about such a deal in public. To us industry watchers, Yahoo was all but giddy about Google (and vice versa), but if we find veritas in these documents, Yang used the prospect of such a union as something that would keep Microsoft at bay. And it did.

Microsoft should have just called Yahoo's bluff on it instead of complaining about monopolies and antitrust issues. You have to think that letting Google run your search advertising is no less distasteful for Yang than selling to Microsoft.

But now Yahoo is faced with hostile pressure from investor Carl Icahn and his opportunistic cronies, as well as pressure from angry shareholders who feel they were negotiated out of a fair selling price for their shares.

For Yahoo, things aren't getting any easier as it hurtles toward its annual meeting in July. Will Yang's pride goeth before the fall? |

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