Moving beyond Microhoo Video
Moving beyond Microhoo Video Transcript
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>> I'm Dan Farber, Editor-in-chief at CNET News.com and I'm here with Ina Fried who is our lead reporter on Microsoft, Ina who broke the story for us yesterday. Why did Microsoft walked away? Was it just about money?
>> Money was a big thing. I mean, they were pretty far apart on price, but also there were a bunch of non-financial things. I mean, Microsoft basically came to the conclusion that Yahoo just wasn't willing to be sold and they were doing everything they could to make sure that a deal wouldn't work. These companies were pretty far apart from what I'm hearing in a lot of different areas.
>> What were some of those areas in addition to the fact that they were a few dollars off, which meant I think about 5 Billion by the end of the day that Microsoft was unwilling to give up?
>> Yahoo wanted a lot of things from Microsoft. One of those was they wanted an anti-trust review for -- that you know, to make sure that everything was gonna pass master. A review that would have taken both sides agreed, several months to do.
>> And I think there was one issue that -- between the two companies they have a large share of the online email market. And I think there's some notion that Microsoft might have to sell off its or divest off its Hotmail service in favor of Yahoo's mail service. Although, that was mostly a rumor, but do you think that that was part of the thin king?
>> I think that may well have been an issue. I think Yahoo is pretty attached to its mail service. I think they would have liked to make sure that if something had to be divested it was Microsoft's and not Yahoo. And I think this, sort of got at the heart of some of the challenges here, which was some huge overlap. Everything that Yahoo had, Microsoft had won, and vice versa in all the key strategic areas. Mail, messenger -- all the different, sort of communication tools of the Internet, and part of having a deal work was gonna be being able to come to some decisions on whose technology wins and have engineers on both sides really line up and I think it became clear that it was gonna be a tough fight on every little point.
>> Was there a lot of cheering at Redmond when the news came out last night that Steve Ballmer was going to walk away from this deal?
>> There certainly was in some corners. I mean, this deal was widely unpopular among a large number of Microsoft employees. It was not universal by far. I mean there are people across the company that believed in the Internet and advertising and it's not just limited to the online unit, but outside of the online unit you have a lot of people that were really reticent about seeing the company put so much of its time, energy and clearly money into this when, you know the company still makes all its money in Windows and office.
>> Well, let's talk about that online unit. In the last quarter, Google did about 5.19 Billion dollars in revenue, mostly on search ads. Yahoo did about 1.3 if you take out the Alibaba investment, which was about another 400 million dollars and Microsoft's online unit for the first quarter of this year did less than a billion dollars and is probably loosing money. So what's -- where's Microsoft gonna go from here, now that Yahoo, which they coveted at one time is no longer the option.
>> Microsoft is girding up for a years-long battle. I mean this is from their perspective, the future, so they're not gonna walk away from this. But the road is a little less clear when you take away -- I mean Yahoo was the only big scale play-out there that really would have boosted Microsoft into a solid number two position.
>> AOL doesn't get them there?
>> You know, they may well do a deal with the AOL. And AOL is sort of that next biggest player outside of the social networks, but AOL doesn't bring the kind of scale that Yahoo did, plus AOL is already a big customer of Google in terms of where it gets its search ad revenue.
>> Now Yahoo's price as we speak is down about 15%. Do you think that Microsoft will just kind of wait it out and come back when the, you know price is right and Yahoo is more willing to sell.
>> It's possible. I think there's one other thing that would have to happen. I think it would have to happen not just Microsoft renewing its offer, but I think what would have to happen is there would have to be enough pressure on Yahoo to do a deal and do it right. Microsoft wants a friendly deal. They came to the conclusion that to get what they want they need Yahoo's cooperation. So they need more than just Yahoo's stock to tank, which it has and may continue. They need Yahoo to actually be willing to do a deal.
>> Now Jerry Yang at Yahoo has point out a few notes and one of his notes he says, "No one is celebrating about the outcome of this past three months and no one should. We live and work in a competitive world and the web is only gonna get more competitive. Executing on our strategy plan is what matters most. So, what is Yahoo's strategy?
>> You know it's interesting. I mean the company still hasn't really made up its mind in this [inaudible] externally.
>> I mean, this is what confuses me. They were very willing to sell for 37 dollars per share and now they're saying we're just going to execute on their strategy. Where are they going?
>> There are still two directions. I mean, there's Yahoo the media company and there's Yahoo the technology company. We're still hearing about both. And I'm not sure, which is the one that makes them substantially worth more than what Microsoft has offered.
>> Well, it seem to me that the have -- they may be entering into a deal with Google where Google will be selling search ads on their site and they've made a lot of noise about something they're calling the Yahoo Open Strategy, which is a revamping or a rewiring of the Yahoo site to build in a social dimension. Do you think that will be enough for Yahoo to generate that kind of revenue and buzz that will, you know get them out of this, kind of downward spiral?
>> Well, the Google deal is interesting because in the short term it clearly helps. I mean the financial guys says it's gonna boost their free cash flow by blah, blah, blah, but in the long-term it sort of takes out of their control that huge chunk of the revenue. I mean that's where the most of the money is made today. So strategically, that puts them more in the media camp than in the technology camp. It will be very interesting to see what this new Yahoo looks like. Where are they competitively different? If Google is providing their ads, it's not on advertising.
>> Would be -- it wouldn't be all the ads. It would be a subset of the ads and not the display ads in this cases I understand, but it will be interesting to see, given what's occurred, whether they will be able to execute and kind of motivate their employees, because they have lost some key employees during this situation.
>> Definitely, I mean also it's important to remember Yahoo does have some really strong assets. Things like Flickr. I mean, it's clearly ahead in a number of different areas. The key is, are those enough and how do you build a long term business. The other thing that I think is really important as you look very long term. This is a game about huge data centers. Microsoft and Google are spending billions on these giant data centers, so that they can have the scale to do this. Is Yahoo really gonna be able to do that. I mean even something like Flickr over time that moves to videos, higher and higher resolution photos, this starts to become really expensive. And is Yahoo gonna have the resources to compete. Google has its search ad funding it. Microsoft has Office and Windows funding it. Those two are clearly committed for the long-term. Where does Yahoo fit in? It's not entirely clear.
>> Well, we'll have to find out later then. Ina thanks for speaking with me.
>> Thanks Dan.
>> I've been speaking with Ina Fried of News.com. I'm Dan Farber, thanks for watching. ^M00:07:37 [ Music ]
News.com's Dan Farber and Ina Fried discuss how the deal fell apart and where the two companies go from here.
