ISM Signpost #27

*** Wooing Yahoo ***

*** Hanging on the phone ***

*** Video star soars ***

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+++ Wooing Yahoo +++

Yahoo rejects Microsoft deal and desperately seeks alternatives

Microsoft continues to circle Yahoo, hoping to push through a $42.1bn bid for the company, as News Corp, AT&T, AOL and Google consider all options to prevent the deal.

Yahoo has already rejected the offer saying it ‘substantially undervalues’ the portal. However, Microsoft insisted its offer was ‘full and fair.’ Yahoo is making a concerted effort to keep the software giant at bay. Yahoo’s CEO Jerry Yang wants the company to remain independent. It is talking to Google, News Corp and even AOL in an attempt to stall the deal. If nothing else, Yahoo may succeed in extracting a higher price from Microsoft.

It’s a potential deal with News Corp which may be Yahoo’s best chance. News Corp would swap ownership of MySpace and other online properties with a 20% stake in Yahoo, according to speculation.

Yahoo has also held separate discussions with Google about outsourcing its search-advertising business in return for a majority of the revenue, which analysts predict would boost Yahoo’s cash flow. But Google’s enthusiasm appears to have waned.

Microsoft seems confident that the deal will be done. It has responded to outraged cries of competition that a combination of Yahoo and Microsoft would in fact create a more competitive marketplace and a robust competitor for Google. Google is probably most concerned about the combined force of Yahoo and Microsoft in areas like instant messaging and web email.

However, integrating two companies the size of Yahoo and Microsoft will be a mammoth task. Microsoft CEO Steve Ballmer has already stated that blending the companies’ two ad systems would be the first priority, in the hope that an integrated version of the two systems might compete better with Google’s technologies. He estimates that the merger could result in as much as $1 billion in cost savings.

Microsoft’s bid is an attempt to replicate the same kind of broad influence the software company has over most PCs to the web. Hostile takeover bids are not widely regarded as best practice in Silicon Valley. But with just a few weeks to go until the March 13 deadline when Microsoft can step up its efforts, the outbreak of a takeover tussle seems likely. Microsoft’s willingness to engage in such a bloody battle suggests two things. First, that Microsoft is more interested in Yahoo’s brand and customers than its underlying technology and people. And second, that Microsoft really, really wants to beat Google.

+++ Hanging on the phone +++

Mobile search builds momentum

The battle to become the de-facto provider of mobile search rumbles on. Yahoo is faring well with oneSearch, suggesting that success in PC search doesn’t necessarily equate with success in mobile search.

Yahoo has secured a partnership with T-Mobile to be its mobile search provider, replacing Google. The deal will make Yahoo’s oneSearch service available to T-Mobile’s customers in 11 European countries. T-Mobile has the option to bring the service to its US operation, though no decision has yet been made. T-Mobile said it will continue to feature Google products like YouTube and Gmail.

Since introducing oneSearch at the beginning of last year, Yahoo has signed partnerships with over 29 mobile operators including Telefonica and AT&T, covering more than 600 million mobile subscribers worldwide.

Meanwhile, Google is growing in confidence that it can generate significant revenues from mobile following the announcement that it had seen 50 times more searches on Apple’s iPhone than any other mobile handset. Google said that if other handset manufacturers follow Apple’s lead to make web access easy, mobile search could overtake internet search within a few years.

+++ Video star soars +++

Google tests video ads

Google has been making strides to capitalise on its $1.65bn acquisition of YouTube 18 months ago. It has begun testing video ads on its search pages and, in a separate move, has launched a new technology that embeds ads into online video. The two-fold strategy represents the search engine’s most ambitious attempt yet to capitalise on the growth of online video.

The video ad testing on Google’s search pages follows the launch of its new universal search last year, a format which mixes videos and news stories with standard text links to web pages. Google has said that the more visual ads suit the new search pages better, as text ads were getting lost within search results that include images and video.

The video ads will not be immediately obvious to the consumer. Ads will signal they have videos using a small plus icon, which will lead to the pop-up of a small video player. Google is considering adding small thumbnail photos to the video as well.

At the moment, advertisers do not have to pay extra to feed video into their ads. What’s different is that advertisers pay when a user clicks to watch their video, even if they never click through to the advertiser’s site. This slight change in strategy suggests that Google sees itself playing a role as a channel that can build brands as well as drive sales.

Meanwhile, new advertising technology enables publishers to incorporate text ads into online video. The Google video ads will take one of two forms: banner ads, which will run at the top of the video screen and over lay ads, which will be inserted on top of videos as they play. The ads will be selected based on the video’s content and the pages where they appear.

As Google works hard to embed video into its business, watch online video soar onwards and upwards.

The opinions expressed are those of the Editor and not necessarily those of ISM Ltd.

All material Copyright 2008 ISM Ltd. All rights reserved.

ENDS