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Microsoft adds Yahoo! to shopping cart

By Eric Bangeman | Published: February 01, 2008 – 08:42AM CT

After a year and a half of intermittent talks, Microsoft has made a $44.6 billion cash and stock bid for Yahoo!, a total of $31 per share. The price represents a 62 percent premium over Yahoo’s Thursday closing price of $19.18; Yahoo shareholders could either get cash or shares of MSFT common stock.

Previous talks between the companies have always broken off, and last May, a Microsoft executive was quoted as saying that his company had no need to buy Yahoo. The inability of the two companies to agree on the terms of a merger or acquisition may be why Microsoft decided to go with an unsolicited offer.

Combined, the two companies would account for anywhere from 25 to 35 percent of the search market, depending on which metrics firm is doing the reporting. That’s still a far cry from Google, which has as much as 65 percent of the search market, but a marked improvement over the current situation—especially for Microsoft’s third-place Live Search.

When it comes to advertising, the combined resources of the two companies would make a more formidable competitor for Google. Recent Microsoft acquisitions such as those of aQuantive and AdECN last year have better positioned the software giant in the online ad market; adding Yahoo’s resources into the mix might enable Microsoft to seriously challenge Google’s supremacy.

Yahoo!, which has seen its search market share flatline over the past year, recently announced plans to lay off 1,000 workers and has struggled to turn its status as the Internet’s most popular portal into a cash machine. Earlier this week, the online giant reported a profit for the fourth quarter which surpassed analyst expectations, but its 2008 forecast was below what the Street was hoping for.

Recent changes at Yahoo! might make the company more amenable to a takeover by Microsoft. Former CEO Terry Semel had opposed earlier overtures from Redmond, and successor Jerry Yang had seemed determined to right the ship on his own, but a statement issued this morning by Yahoo! that its board of directors would “evaluate this proposal carefully and promptly” guarantees that the proposal will get serious consideration.

As we pointed out last month, a Microsoft-Yahoo! combination won’t be a panacea for the two companies. Combining two companies that are losing market share doesn’t guarantee that the trend will be reversed. And should the merger go through, and the competitive situation remain the same, it’s going to be even more difficult for Microsoft to play catch-up to Google.

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Microsoft-Yahoo: of bids, poison pills, and hostility

By Anders Bylund | Published: February 04, 2008 – 03:53AM CT

Microsoft has been sniffing around Yahoo for the last 18 months, but the twain could never quite agree on a fair deal in private. Mr. Softy decided to take the matter public.

Terry Semel may have triggered the offer on Thursday, when he announced his resignation from the Yahoo board. At the last published count, he had 25 million unexercised stock options on hand, giving him a serious say-so in this deal (more on that later). Of course, the declining share price must have helped too, as Microsoft slapped together an offer that’s below the stock’s 52-week high of $34.08 per share—and still gets to look generous. Before the offer, the average Wall Street analyst thought Yahoo was worth about $27 per share, standing on its own two feet.

Hostile proceedings

The announcement you saw on Friday morning wasn’t a done deal, though. It’s what you’d call a “hostile” takeover by definition, where the would-be buyer sends in a bid for every share on the market. Then, the company hopes to convince enough shareholders of the offer’s virtues to gain a controlling stake in the target company. After that, it’s a simple matter of calling a special shareholders’ meeting to elect a new board, automatically win every seat, and then fold the whole operation into your own. Case closed.

But things don’t always work out that way. And I don’t think it will be smooth sailing this time. Jerry Yang and his crew have not shown any desire to be acquired, and for good reason. If Microsoft gets to have its way with Yahoo, this could be the biggest misuse of brand value and shareholder assets since Time Warner merged with AOL. The cultures are poles apart, there is too much overlap between the two operations—and Yahoo really doesn’t need a big brother’s help right now.

Buster, bluster or filibuster?

The Yahoo board has taken an appropriately thoughtful stance so far, promising to look the offer over and to evaluate all strategic options. “A review process like this is fluid, and it can take quite a bit of time,” said the statement. And it’s not just empty talk, either. The board has some anti-takeover tools in its arsenal.

There’s a “poison pill” provision in play, which would allow the board to issue up to 10 million shares on new stock in case there’s an acquisition offer on the table that they don’t want to endorse, and each share can have nearly unlimited voting power. Furthermore, every director would be allowed to cash in all of their outstanding stock options immediately with an unsolicited offer on the table, and that’s about 16 million potential new shares. Such a situation could get considerably more expensive for Microsoft.

Fan reaction

Judging from the share price action, neither Microsoft’s shareholders nor Yahoo’s like this offer very much. Microsoft stock dropped 6% on Friday, which actually lowered the value of a deal with 50% of the bid coming from a stock swap. And while Yahoo investors saw their shares worth 48% more by the end of the day, $28.38 is still less than the proposed $31 bid. That means investors are hoping for a better offer.

So can Microsoft step up its game any further? Well, the cash component of the current offer is a hefty $22.6 billion, and the Redmond Raiders only have $19.1 billion of cash equivalents on hand. That means taking on debt, which would be the first long-term borrowing since at least 1991. That’s where my sources fade into the mists of time and electronic availability.

Where to, captain?

The bigger question is what the Yahoo board says, and how Microsoft responds to that. Given Yahoo’s new direction and refreshed corporate structure, I would wager that an outright “yes” is out of the question. There is more value in a separate Yahoo that can set its own plans into motion than there is to a Microhoo conglomerate where Microsoft’s goals take precedence. Hold out for a massive overpayment or none at all, is my opinion.

Microsoft might still do it, though. Steve Ballmer says that he sees the online advertising market doubling to $80 billion in two years, and he’d like a slice of that sweet, creamy pie. The less he has to share with Google, the better. Yahoo’s $7 billion in 2007 sales looks huge next to Microsoft’s online division producing $1.5 billion—but it’s less than half of Google’s $15 billion revenue take. The business case for sweetening the offer looks compelling if you assume that the combined company will gain market share back from Google in the near future, and that he integration of the two companies is smooth as greased butter on Teflon. Ballmer might see it that way, but I think he’d be wrong on both counts. So if this deal happens, it’ll be after dragging Yahoo shareholders and board members along, kicking and screaming. Microsoft will overpay for the company, and will end up weakening Yahoo in the process.

Pay more, get less. I’d be sorry for everyone involved to see it happen.

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Microsoft lands ad deal for financial sites

By John McBride | Published: January 30, 2008 – 08:07AM CT

Another month, another deal. Microsoft announced Tuesday it will become the exclusive provider of contextual and paid search advertising for the Wall Street Journal Digital Network, a month after announcing advertising deals with CNBC and Viacom. “Microsoft’s state-of-the-art advertising platform will enable us to dramatically improve our revenues,” said Gordon McLeod, president of the network.

Redmond isn’t saying how much cash the deal will bring, but being a part of high-profile financial sites like the Wall Street Journal Online, Barrons.com and MarketWatch.com as well as Walt Mossberg’s AllThingsD.com, has got to be a coup, even if display ads aren’t part of the package.

“This deal is a significant win for Microsoft for two key reasons,” said Brian McAndrews, Microsoft’s senior vice president for Advertiser and Publisher Solutions. “First, it makes the extended Microsoft advertising network the premier destination for advertisers interested in reaching financially minded users, as it complements our offering in this vertical through MSN Money and other syndication partners. Second, this deal is a strong indicator that we’re gaining significant traction with our advertising platform.”

McAndrews left out a third bit of significance: Microsoft is taking the battle against Google to Google’s doorstep. Recall that MySpace, which like the WSJ is part of Rupert Murdoch’s giant News Corp., signed a $900 million advertising deal with Google in 2006. And the display ads on the WSJ sites are handled by Google’s DoubleClick. Bringing Microsoft aboard gives News Corp. a chance to evaluate both competitors in real time. If Microsoft plays its cards right—not to mention its adCenters and aQuantives—perhaps it can squeeze its rival out.

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Google in its sights, Microsoft opens up Content Ads beta program

By Jacqui Cheng | Published: August 21, 2007 – 09:06PM CT

Microsoft announced yesterday via the Windows Live Blog that it plans to extend its Content Ads beta program to all US customers who wish to advertise on MSN properties. Previously, the program was limited to a small selection of advertisers and the MSN sales team, but it will now be available to the public to test out starting on August 29. The ads will be displayed on select Microsoft properties—such as Real Estate, Money, MSN, and Windows Marketplace—and will eventually expand out to other Microsoft-owned properties and “premium partner sites.” If Content Ads manage to take off as well as Google’s AdSense program, then competition between Microsoft and Google could heat up and force both to offer even better options to advertisers and, eventually, publishers.

The Content Ads program offers contextually generated ads, which means that it displays ads that match up with other keywords found on a particular page—an article about bears might display ads about bear traps or teddy bears. Up until now, the content offered through the Content Ads program was severely limited, but Microsoft hopes that by opening up the program to all US advertisers, there will be a much wider selection of ads available to the MSN network.

Microsoft is offering its advertisers features like keyword-level pricing, so that advertisers can opt to pay different amounts based on different keywords, and separate content and search bidding, which will allow advertisers to decide whether they want to advertise on search pages, content pages, or both. Microsoft also says that once it expands the program out to more of its properties, ad campaigns will automatically be expanded to include the new sites.

Content Ads are Microsoft’s answer to Google’s AdSense, and many hope that Microsoft’s opening the program up to the public will introduce more meaningful competition in the space. Another major player in the market would offer more choice and hopefully fuel more competition, not only in technology and features, but also in pricing and terms.

Microsoft has been on the warpath recently in an attempt to catch up with Google by rolling out its own user-uploaded video site and, more recently, offering extended online storage options. If the Content Ads program matures past the beta stage and takes off, it could mean major changes to how direct marketing is handled online, and that strikes directly at the heart of Google’s revenue.

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Google as gatekeeper: No “personal attacks” in campaign ads

By Jacqui Cheng | Published: January 25, 2008 – 12:16PM CT

It’s no secret that advertising of all kinds is moving online in the form of banner, text, and even video ads. The industry is booming, so it should come as no surprise that as election season draws near, political ads are moving online too. This presents a new challenge to publishers and ad networks trying to sort out their relationships with those ads—for the most part, everyone’s interested in being as fair as possible. For example, last August, we posted about our own policy on accepting political ads on Ars (that is, we’ll accept them from all legitimate candidates no matter who we like).

This is a continually evolving issue, and now two major figures have weighed in. Google is the first, and has recently posted its own policy on running political ads through its AdSense network. As Peter Greenberger of Google’s Elections and Issue Advocacy Team noted on the company’s public policy blog, the new policy boils down to five main points. First, each ad must meet the same editorial guidelines as every other AdSense ad. This includes not violating anyone else’s copyrights, not promoting “unacceptable alcohol products,” not promoting violence against anyone, not promoting counterfeit goods, and the like.

Second, Google agrees to promote ads for all candidates fairly regardless of political views or affiliation. The fourth point (we’ll get to the third in a second) says that if the ad is soliciting for donations, the ad’s landing page must clearly state that they won’t be tax-deductible. And finally, the fifth point says that misleading ads won’t be allowed. The text of the ad must be descriptive of the candidate or clause, and can’t trick people into clicking (by, say, claiming to be an ad for the opposing candidate).

The third point reads, “No attacks on an individual’s personal life.” Google says that a general disagreement with a candidate’s policies and overall party is fine, but that running an ad that attacks someone’s non-politically-related actions won’t be allowed. “So, ‘Crime rates are up under Police Commissioner Gordon’ is okay, but ‘Police Commissioner Gordon had an affair’ is not,” wrote Greenberger.

It’s the third point that some critics disagree with. Former publisher and current ad network exec John Battelle wrote on his blog that he’s glad to see Google’s transparency when it comes to political ads, but that the “no attacks on personal life” rule only aids in American politics continuing to move towards “whitewashing and dishonesty.” Because a personal attack can fall into such a gray area (just ask our feisty forum members), Battelle feels that a policy against false statements would be much more useful. (It should be noted that Ars Technica uses both Battelle’s Federated Media and Google’s AdSense to support our site.)

“[I]n my mind, accuracy is far more important in public debate than some subjective sense of what constitutes a personal attack,” he wrote. “Sure, scandalous stuff is often scurrilous, but the first amendment is clear on speech: all speech, in particular, all public speech, must be allowed, so that the real truth can be assessed by an informed public. We don’t need Google, or anyone else, sanitizing it for us.”

The online world went through a phase in 2005 when it was sorting out what, exactly, constitutes online political advertising. These days, the industry is now making an attempt to self-regulate in the interest of being as fair as possible, but it has led to a disagreement over what type of ads to allow. The new Google policy certainly won’t put an end to that debate any time soon; in fact, given the company’s online advertising reach, making itself a gatekeeper in this way will probably just stir up even more controversy.

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