Yahoo and Google – How Bad is it?

    June 14, 2008

It’s time for another edition of Good Idea/Bad Idea!

Good idea: Making more money.

Bad idea: Making more by admitting that you suck and your competition is so good at this that you’ll let them make the money for you.

Actually, other than the “admitting you suck and your competition is so good,” that doesn’t sound like an entirely bad idea, does it? I mean, using the competition to increase your profits could potentially be a good thing.

Potentially. For the most part, however, Yahoo’s decision on a non-exclusive search advertising deal has met with pretty much universal scorn. A sampling of headlines:

Not overly enthused, eh, blogosphere?

The universal sentiment is probably best expressed in TC’s headline: rather than preserving value to shareholders, as Yahoo has long claimed to try to do, this only reemphasizes how short they’ve fallen to Google.

But at least one prominent tech blogger doesn’t think it’s a bad thing: Henry Blodget. With the headline “All Right, Yahoo Bashers, Put a Sock In It: This Is a Good Deal,” he pretty much lays out his own argument. But because I like you, I’ll tell you the rest of it (abridging liberally, emphasis added):

In this deal, Yahoo gets:

  • $250-$450 of additional free cash flow in Year 1.
  • More cash flow in years 2-4, as the deal ramps and Yahoo’s search-query share remains meaningful
  • The ability to maintain or phase out Panama as it sees fit.
  • The ability to strike a death-blow to the one other player in the search market with any kind of meaningful share—Microsoft.
  • The freedom to focus on display advertising and AMP, Yahoo’s new display serving platform.

When you look at it that way, it really doesn’t sound quite as awful. But, Blodget acknowledges, the deal “won’t save Yahoo.” Yahoo’s days in the search business are numbered, “But . . . Yahoo can now focus almost all of its efforts on revitalizing its properties and display business, which is where its future lies.”

So what do you think: Good idea or bad idea?