Google Dumps Yahoo, Which Should Come as a Shock Only to Yahoo
by Kara Swisher
Posted on November 5, 2008 at 9:49 AM PT
When reports came out last week that Google and Yahoo were downsizing their controversial search advertising deal, I told a Yahoo exec I happened to be having dinner with that that it was the surest sign that the search giant was about to dump the long-suffering Internet portal.
The exec, who made the case that the deal was always tactical, and not strategic, laughed. For all its problems, Yahoo (YHOO) has always been a straight-up player and such sneaky machinations are not its strong suit.
Google, not so much.
After all, Google (GOOG) had already tried using The Wall Street Journal the week before to try out an our-way-or-the-highway tactic to play chicken with the Justice Department, to no avail.
As I wrote:
And, while it might be testing the Justice Department in hopes of salvaging the deal, I suspect Google–as much as its founders want to help out Yahoo CEO Jerry Yang and block Microsoft at the same time–is just now figuring out that walking might actually be the best move.”
Then in a sudden switcheroo just days later, Google was doing the docile-dog play, using the Journal again to signal that it was willing to compromise drastically to do a deal and trying more to look cooperative with the Justice Department.
Now, Google is not some Internet Sybil–way out of the deal one week and in another. Instead, it was creating what one might call “plausible deniability,” a Washington, D.C. term that essentially means covering your own petard.
Despite Google’s last-minute theatrics of cooperation, I am sure the decision had long been made at its California Googleplex lair that it would bow out.
After all, many top execs at the company were dead set against it from the start, mostly due to the undue scrutiny it would bring to Google. Those execs now had plenty of ammo to mercilessly strafe the deal from behind.
Early on, that was also a big worry of Google’s own operatives in D.C., who expressed concern–largely ignored at HQ, where execs really do see themselves as not even slightly evil–about its growing image as a scary behemoth.
Well, that picture is now most definitely solidified in the minds of regulators, helped along by the dangerous pontificating by CEO Eric Schmidt a little while back, who haughtily declared that Google would move forward with or without government approval.
“Time is money in our business,” said Schmidt, in a quote that I am sure he would like to take back now.
It was just the arrogant kind of attitude that Microsoft (MSFT) lobbyists, who have been hitting this deal hard like an old bass drum, needed in order to paint an ugly picture of Google in D.C.
And–more troublesome for Google–it gave advertisers and publishers, many of whom have long harbored fear of the company’s growing power, the courage to speak out, which they did in droves, along with many public interest groups.
But, as has been clear for a while, the Justice Department–after making its own big and noisy deal in its veiled public leaks of outside litigators and such–had to move forward with a lawsuit, and before the election was over.
And, indeed, as I have long maintained, stopping the deal was the right move all along, because a partnership between the No. 1 and No. 2 players just never should be allowed, however slight in its configuration.
As I wrote in April:
So, any further hook-up between the two seems sure to become the Justice Department Lawyer Employment Act of 2008, the likes of which we have not seen since Microsoft got its turn at being deservedly whacked for being a monopolist back in the last century.
Let’s face it, outside of those who cannot seem to shake the annoying Kumbaya mentality over at Google, a Yahoo-Google partnership is simply fantastical, like some out-of-control Dr. Seuss ditty.
They could not, would not with a goat. They would not, could not on a boat. They will not share an algorithm, they will not, will not, Jerry-I-Am.”
Because, although Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech, the government was never going to allow such a clearly dominant company in search to strike such a deal, given the obvious antitrust implications.
As I also said then: “It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.”
Thus, the die was cast for the inevitable dumping of Yahoo, in a hasta-la-vista-baby letter this morning terminating the partnership, which Yahoo should have seen coming many miles away.
Sources close to the company, which has been justifiably irked about how Google has handled itself with the Justice Department, said execs at Yahoo might have expected the move, but were deeply disappointed too.
(Here is Yahoo President Sue Decker’s memo on the collapse of the partnership.)
At least the very least, Yahoo did use the deal to escape the clutches of Microsoft in the midst of an ugly takeover battle, which investors now wish it had not, given its stock price is now half of what it was then.
And, indeed, it was perfectly tactical in that regard, using the software giant’s archrival, Google, to poke Microsoft relentlessly.
But Google would only prod so much, until it adversely impacted its own main goal of quiet but inevitable domination over search and, in fact, all online advertising.
When it did just that, dragging Google into a thorny briar patch, the company inevitably resorted to one of its internal mantras, “Feed the winners, starve the losers.”
Time will tell just how much a loser Yahoo will be from this latest bump in its current pothole-filled journey.
As to the candy-colored Google image? Well, it’s definitely not as sweet as it used to be.
Please see this disclosure related to me and Google.
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Comments
Curious, because when The Deal reported on Oct. 21 that Google and Yahoo! were preparing to abandon their ad alliance, you claimed that we’d “been played.” [http://bit.ly/FE8Lo] You also predicted that the DOJ was unlikely to block the transaction. Now you expect readers to believe that you saw the writing on the wall all along. Well done.
Posted by Alain Sherter at November 5th, 2008 at 1:36 pmDecker’s comments are almost, if not equally astonsihingly, as Yang’s “we’ve accomplished almost everything we’ve set out to do’s” comments. Are these people clueless, or just ignoring their shareholders in entireity? Jerry, Sue & Roy should all be in prison let alone ruining a publicly traded company. They are reckless, irresponsible, arrogant, dismissive and utterly and totally unqualified and incompetent to be running a roughly $17b company. They represent the single most unqualified management team is history. Business schools for generations will study the incompetence of these three unqualified “managers”. What a bunch of clowns running this circus
Posted by Mike Kane at November 5th, 2008 at 4:17 pmA:
The Oct. 21 story in The Deal breathlessly was saying the alliance was going to be dumped imminently and it was not until almost three weeks later that it fell apart.
You could have just said it was going badly, but you took it further.
That made the reporting wrong, even if it turned out the deal collapsed later. You don’t get points for guessing right what happens weeks later, especially since Google walking was not what was happening at all at the time of your report. They were still in talks with the Justice Department.
In addition, if you actually read the piece I wrote, I said exactly that:
“Wrote The Deal’s Cecile Kohrs: ‘A proposed joint venture between rival Internet companies Google Inc. and Yahoo! Inc. appears headed for the trash bin, just ahead of an expected U.S. Department of Justice challenge to the agreement, lawyers close to the deal said.’
Well, maybe it will die at some point. But, in the words of Juba in the last line of the greatest movie ever (”Gladiator,” of course!): Not yet.”
I then painted several scenarios–and made sure readers knew it was my analysis–about how it was going to go. One of those possibilities was that the Justice Department might have a hard time fighting such a case. I did not say they would allow it at all.
Then I wrote at the end:
“Thus, that is going to take more days of jabbering, probably into next week (although it all does have to be settled before the election, when the regulators pressing the case might be out of a job).
After those blabby avenues are exhausted, of course, we might very well see the digital gladiators go at it. Or abandon the field.
But not yet.”
And that is exactly what happened.
In other reports, I did talk about a VARIETY of scenarios, including that Justice backed down, but I did not predict they would. I also spun a scenario in which they all went to court.
But I did write in that piece here, that I thought walking was the oddson favorite. And I specifically NIXED the idea that Justice would back down:
“4. Justice waves the deal on through as is:
Wake up, Eric and Jerry, you’ve been dreaming! Also, in this event, the head of Microsoft CEO Steve Ballmer would explode.
Prediction: Well, it could happen. Also Ralph Nader could get elected.”
Sorry, but it seems your comment is even more full of holes and you might try reading my pieces before mouthing off to defend an inaccurate story.
So next time, don’t bring a broken pencil to a MacBook Air fight.
Posted by Kara Swisher at December 4th, 2008 at 12:41 am