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Yahoo's days as an independent company are numbered.
It may take months or it may take a year or two, depending on the scenario, but that's the reality that CEO Jerry Yang won't be able to forestall even after his refusal of a Microsoft takeover.
Now that Microsoft has walked away after offering around $35 a share, nothing but another offer for the company is going to put a firm enough floor under Yahoo's shares to allow it to survive attack by any number of forces.
No other scenario is credible in which Yahoo survives, given all the forces now aligned against it.
Even if Yahoo gets an investment from Time Warner and combines with its AOL unit, it's not going to be at the level Ballmer was offering, because the only thing propping Yahoo up was Ballmer's interest.
Why would AOL want to do Yahoo that favor now, when AOL is seeing increased ad inventory thanks to its acquisitions of Tacoda and Quigo but has still not generated revenue growth from them as they're being integrated.
Another possibility that's been floated is News Corp. selling MySpace to Yahoo.
But it's hard to see how Yang could get support for either of those deals from shareholders after he just cost them a deal in the mid-$30s.
In fact, Yahoo is about to be besieged by a flood of shareholder lawsuits, which will prevent Yang from accepting any takeover price than is lower what he turned down from Microsoft. That means he's significantly weakened in any further talks, even as his shares are being laid low enough for other suitors to take an interest.
Yahoo may opt to outsource its search business to Google, a plan the two companies have already put through a pilot test.
That could boost Yahoo's cash flow, as some analysts have predicted. But it will also force Yahoo to write down all of its significant investment in Project Panama, a multi-year research project whose sole purpose was to boost Yahoo's revenue per search.
And such a deal is sure to face regulatory scrutiny, given that Google and Yahoo combined control more than three-quarters of the search market. Microsoft is sure to prod its many, (what can we call them?) contacts at the U.S. Justice Department in that direction.
Such scrutiny will keep parts of Yahoo in a longer limbo than they've been in these past three months and delay any cash-flow improvement.
In the meantime, with search in limbo, the core of Yahoo's value comes from selling branded, targeted advertising placed on its content sites. And to be sure, many of those sites are the most popular on the Web.
But social networking sites like Facebook and MySpace are growing faster, and Yahoo has already said that the economic slowdown is hurting its ad business.
Granted, Yahoo may successfully integrate its online ad acquisitions and start posting more growth in branded advertising while also slashing jobs to lower its costs.
But even if it can, it faces two larger competitors with deeper pockets, namely Microsoft and Google, targeting the same market. What has changed at Yahoo that will allow it to better compete against either of them?
If anything, the landscape will be harder, based on reports coming out of Yahoo that the company faces a major defection of talent.
When the Yahoo board tapped Yang to replace Terry Semel, Yang said Yahoo's challenge was a technical one, and everyone assumed he was talking about the search business. Now Yahoo is sending up the white flag in search by agreeing to partner with Google.
With Microsoft buying aQuantive and Google snapping up DoubleClick, the key to online advertising is slowly shifting to relationships, rather than algorithms. Google has already shown its prowess in online advertising, and Ballmer says Microsoft is about to focus "100 percent" on that market.
What Yahoo bought with 24/7 Real Media and Right Media doesn't quite measure up to those acquisitions.
Yang is about to find himself short on time, with his only support coming from a board that's about to be attacked by big-money investors and from employees whom he'll have to start firing -- if they aren't already leaving.
His odds of surviving, like Yahoo's, are slim.
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