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Here is the press release announcing a half cash / half stock offer.

Microsoft Corp. today announced that it has made a proposal to the Yahoo! Inc. Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion.

Juicy bits from the press release, which contained a letter to the board of Yahoo!

In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction." According to that letter, the principal reason for this view was the Yahoo! Board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.

and why Microsoft feels the deal makes sense

While online advertising growth continues, there are significant benefits of scale in advertising platform economics, in capital costs for search index build-out, and in research and development, making this a time of industry consolidation and convergence. Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

• Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.
• Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.
• Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.
• Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

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Yahoo!'s Downward Trend

Yahoo! killed off their brand universe project, and recently fired 30 people. Rumor has it that about 2,000 more layoffs might be coming soon. Yahoo! shares are nearing $20, trading at $20.78, and giving them a market capitalization of $27.8 billion.

This WSJ article highlights that about half of Yahoo!'s value is in cash and equity stakes in Alibaba and Yahoo! Japan. Over the last year Yahoo! lost significant momentum and marketshare in search. They need to outsource search and search ads, fire a bunch of employees, gain search marketshare, or there is going to be a buyout or merger before the year is out.

Pageviews Still do Not Have Much Value

Sidebar: to anyone hyping the value of pageviews and social media, think of how many pageviews Yahoo! has. If you pull out the value of Yahoo!'s large equity stakes in other companies and cash on hand, Amazon and eBay are each worth about 2 to 3 times Yahoo!, and Google is worth about 13x.

10 Key Ideas Yahoo! Needs to Implement Tomorrow (or Sooner)

After seeing the underwhelming launch of Wikia Search, I think Yahoo! should push further in human aided search. Relevancy is based on perception and marketing. Yahoo! needs to do the following if they want to compete in search:

1. Increase the relevancy of their directory by actually featuring it (the directory looks like a sidebar to a blog that occupies most of dir.yahoo.com), and by becoming more selective with what sites they accept. You can appreciate their bad marketing of the Yahoo! Directory by the fact that the Google Directory (a DMOZ clone) has a higher PageRank.
2. Yahoo! is testing integrating Del.icio.us data in their search results. Brand Yahoo! search as human edited safe search and find a way to pay end users for their contribution. Payment does not need to be monetary. Take a look at the success of Yahoo! Answers and Del.icio.us and apply those toward search. Google gives Checkout advertisers free ads and a higher ad CTR (which leads to a lower ad cost). Win search marketshare from your users by giving them rebates on your other products as well.
3. Create a branding and awareness campaign around the new Yahoo! Search. Hire someone to do a fake study proving that Yahoo! Search is more relavant than any of the other players. Make sure Ask or Microsoft is ranked #2 ahead of Google.
4. Let users comment on search results AND on listings in search results. Controversy surrounding this will lead to more people talking about and evaluating Yahoo! Search for quality.
5. Launch a new toolbar with a meter like PageRank in it...call it YourRank (or something the emphasizes to the user) that it is their web and what they like. Heavily push that branding message to users locked into Yahoo! email, Yahoo! Stores, and other verticals they interact with.
6. Create a well branded specialty search for bloggers with innovative features that make it easy to follow the conversation both ways. Also launch creative ideas to buy mindshare with other high authority communities (universities, open source projects, etc.).
7. Easily allow advertisers to do keyword research on Yahoo! outside of while they are setting up search campaigns. Create a reliable publicly accessible keyword tool which actually markets the Yahoo! Search product.
8. Give away a lot of useful search market data (like Microsoft recently did with their Ad Intelligence plug-in).
9. Put the Yahoo! brand on the millions of syndicated domain landing pages they power each day.
10. Increase the relevancy of their contextual ad product and increase payouts to 100% (buy marketshare) BEFORE Microsoft openly launches their network. Perform case studies with publishers who saw their Yahoo! monetization go up AFTER switching from AdSense (and other inferior networks) to the NEW Yahoo! Publisher Network contextual ads program. Perhaps pay key leading bloggers 150% just to get them using, talking about, and giving feedback on your ads. Buy marketshare...

How Could Yahoo! Become Relevant?

Do you still use Yahoo! Search? What could Yahoo! do to make you want to use them and talk about their search product?

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Today Shanghai's Composite Index lost nearly 9% of it's value. And the Dow Jones Industrial Average dropped nearly 200 points instantaneously right around 3:00 p.m. EST. When the stock (or commodity) prices go up or down value is neither created or destroyed, but shifted and/or consolidated. Wealth is nothing but a form of market leverage.

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Recently Miva announced that they were dumping a partnership with Yahoo! in favor of distributing Google ads.

MIVA said in its papers that it will adopt Google advertisements on applications and sites managed by its subsidiary, MIVA Direct, which produces white-label toolbar and Web search. The deal, which will run for two years and has "broad termination rights," will begin within 30 days.

The market responded by bidding Miva's stock from $3.40 up to $4 a share. What does that mean to marketers?

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It seems a large part of the reason that Yahoo!'s stock recently tanked was the market was punishing them for delaying their ad system.

I know factoring clickthrough rates into ad costs will help optimize their revenue stream, but does anyone think the new system will help them catch Google on the monetization front?

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"They really need to fix the search engine, and that seems like that's a March quarter event," he said (while shaking his magic 8 ball).

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Good observation here:
Google is worth $30 per share

Funny that, as shares are up more than $30 apiece in after hours trading. Google delivered another blowout quarter. Last earnings call they soften expectations for this quarter, and with the bar set low they easily topped it.

• Google noticed 14% profit growth in sequential quarters

• 96% year over year profit growth (although last year's results included a $201 million charge to account for a legal settlement with Yahoo over the Overture pattent).
• Google saw 20% quarterly increase in profit from Google.com
• 7% growth rate throughout their partner network
• international 39% same last and this
• UK 15% this quarter 14% last
• 4989 employees as of September 30th

Gary has more:

"Although this is typically a slower season for internet properties, we had another exceptional quarter," said Google chief executive Eric Schmidt.

"Our focus on end users and on quality of information and advertising worldwide continues to work extremely well. We are very pleased with how well this is working at scale."

Shares eclipsed their all time highs, & were trading at 335.06 when I last checked, with Google up over 10% in after hours trading.

Not that I had many shares, but I sold a few at $326 thinking Google would soften forward guidance, but they never did! I still suspect the stock will come down a bit after the market opens in the morning ;)

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Yahoo! quarter profits flat, but they sold a bunch of their Google stock for over $100 million this time last year, so they had an impressive revenue increase. Their stock is up 6% on the day.

Yahoo said late Tuesday that net revenue, which excludes fees paid to distribution partners, leaped a better-than-expected 42% to $932 million. Of those sales, Yahoo's marketing-services business -- which is made up of branded and sponsored-search advertising -- accounted for 82%, or $761.8 million, up 40% from a year ago.

I can't believe Jux2 is a meta search engine without any revenue which uses scraping and is already up to $26,000 on eBay. Some of the top bidders are smart cookies too, so I am wondering what I am missing.

LookSmart needs to do a reverse split if they hope to stay listed on Nasdaq.

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Google to report proforma earnings, not just net

Google Inc. has agreed to meet Wall Street halfway in how it reports quarterly results, seeking to dispel confusion created by a strict adherence to accounting standards, the company said on Thursday.

The Web search leader said it would present its third-quarter results next Thursday, October 20, in net terms but also, for the first time, in operating terms, excluding the after-tax effect of expensing employee stock options.

Who could blame Wall Street for wanting to know the cost of stock options when Google is giving away huge ones.

With all the economic uncertainty that has been floating through the economy I am betting Google has a soft quarter compared to all the home run quarters they have been announcing.

I am guessing the stock may go down to $250 to $275, at which point it might be a good time to buy Yahoo! if they go down in tandem. I say all this while not having the money or guts to short Google's stock ;)

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Google up in regular trading due to speculation that it may be added to the S&P 500 index after the PG purchase of Gillette (now with 5 blades) goes though, but instead S&P announced home builder Lennar is to be added. In spite of the two recent hurricanes the third quarter was the best so far this year for the US stock market.

Bill Miller does not think the US deficit matters, but the consolidation of wealth at the cost of the whole leads to social illnesses like political corruption.

Meanwhile, Larry is sitting on a fat billion as Google partners with NASA & the internet conglomerates gear up for the big battle ahead. eBay, Yahoo!, & Amazon are each up a couple points in the last couple days.

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Is Google...

• overpriced? based on some technicals

• underpriced? The Wall Street Journal [sub req] wrote an article about them being a value play.
• currently there is more chatter about them being added to the S&P 500 & Nasdaq 100.
• that supply imbalance could be partially offset by Google's announcement today that they intend to do a secondary public offering of 14.16 million shares.
• on their most recent investor webcast it seemed as though they were trying to talk future guidance and stock price down, which is an interesting move prior to a secondary public offering. I am sure the speculation will run wild on what they need an additional 4 billion dollars for.
• The main advantages companies have over individual share holders are insider knowledge, the fact that companies lack the irrational emotion that individual traders do, and the ability to control the number of shares outstanding (known as the float). In Trim Tabs Investing Charles Bidderman's macroscopic liquidity theory states it is best to buy stocks when companies are buying and sell when they are selling, but if Google shares drop too far this secondary public offering might be a good opportunity to get cheap shares. They are already down $11 a share in pre market trading.
• to understand the true value of Google I think you need to look at their core mission, their expaning reach, and how they may further expand.

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Having limited finacial assets, I have never shorted a stock, but the Chinese search engine Baidu (ticker: BIDU) seems a bit pricey at $120 a share, a 350% increase from the IPO price.

There are rumours of Google wanting to buy them, but I doubt they want to spend billions of dollars buying them and end up needing to worry about the issues of music sharing and the like, especially while Google wants to court some of those music labels to spend on search.

If I see internet stocks go up based on hits or pageviews I will make sure I am ready to sell what little stock I have. ;)

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• Yahoo! shares dropped 10% after stating their quarterly profits.

• eBay shares gained over 10% after stating their quarterly profits.
• China unpegs Yuan to US Dollar - seems like most people were expecting a better than 2% revaluation against the dollar, but I guess they have to do it in small steps.
• The Nasdaq at 4 year highs
• Google to report quarterly results at 4:30 PM today via webcast

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Hedge Funds:
Hedge fund investors have too much money chassing too few good deals:

With surging investor demand for hedge funds, buyout funds and venture capital firms, some funds are slamming the door to new investors, industry experts said at a New York conference on Wednesday. Some complain the industry has gotten too crowded to generate the double-digit returns they seek.

Summer is Slow for Search:
Earnings season is coming. Search is normally a bit slower in the Summer since people spend more time outside enjoying fun weather.

Goog:
Google is nearing $300 again, and Google option prices are predicting a move:

"Options are already pricing in a plus or minus 14 percent move for Google's earnings, making outright option buying expensive," Goldman Sachs strategists Maria Grant and John Marshall wrote in their latest Weekly Options Watch commentary.

Goldman Sachs Internet analyst Anthony Noto believes investors should own Google and expects Google to post strong results on July 21. Noto said he prefers to wait until after the quarter to reassess attractive entry points, given the recent rally in the stock.

Yhoo:
Yahoo! has gained nearly $3 a share in the last 5 days. Legg Mason (not exactly sure why but they one of my favorite analyst firms) initiated coverage on Yhoo at buy. Yahoo! recently started adding crawled web listings to their Hot Jobs job search.

IACI / ASKJ:
InterActive Corp is supposed to spin off Expedia and close their Ask Jeeves purchase this month. Although I think they are under contract with Google until 2007 there are rumours that Ask Jeeves will be launching their own internal pay per click network. I can't see them doing it anytime soon though.

THK:
Andy Beal, author of SearchEngineLowdown, recently announced on his blog that he is quiting working for Websourced, which is the largest public SEO company (trading on AMEX as THK). He was a senior VP of marketing and prettymuch the face of KeywordRanking.com as far as I know, so that is a huge blow to them.

Their stock price has been hovering in the $2 to $3 range recently. About a month ago they gained about $25 million in market capitalization which coincided with getting a $15 million loan. Since then the stock has dropped back to $2.05 a share, and currently their market capitalization sits at about 68 million dollars.

I believe WebSourced acquires many of their clients through leads from inqueries at search conferences, such as JupiterMedia's Search Engine Strategies conference (which is highly recommend and being held in San Jose from August 8^TH to 11^TH). KeywordRanking is sponsoring the San Jose event, but it will be interesting to see what happens with Andy. He is a popular speaker on the conference scene.

Recently WebSourced brought on Heather Lloyd-Martin and Mike Grehan (who is arguably one of the top trusted names in search), but in the last month they have lost Andy Beal and Jason Dowdell. Andy posted his reasons for leaving:

I wanted my readers to be the first to know that I have decided to resign my position at WebSourced, Inc. The five years that I have spent, helping the company grow from a start-up to the world’s largest search marketing company, have been some of the most rewarding, exciting and satisfying of my career.

In writing this letter, I hope to avoid any confusion as to why I decided to resign as VP of Marketing. This decision is not one that comes lightly. It is clear that my vision for the company’s future does not match-up with its current course. These philosophical differences have led me to conclude that WebSourced’s current path does not align with my own beliefs.

But you have to wonder the exact reason and how soon others may follow.

To run a successful search firm you only need one or two names and a small group of talented programmers and people who truely understand how the web works.

From my knowledge of the industry and how quickly stuff changes I can't fathom creating a business model that provided effective results and scaling it out to hundreds of employees and thousands of clients.

WebSourced's current business model has a ton of employees, and a small change in client acquisition could likely cost many jobs. It will be interesting to see how the stock market reacts to this news.

Internet Archive Sued:
the Internet Archive caches a history of the web. Recently the New York Times reported the Internet Archive is getting sued. If they are forced to pay any sort of fine that could have huge implications for the search business in general.

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Shak says Chinese search engine Baidu is getting ready to go public.

Google owns 4% and may want the rest of the company, although the WebmasterWorld thread points to Baidu in a rather negative light. Interesting to get a glimpse of how search users around the globe think of different competing services. At the end of the day it is all about money though. Does Baidu have technology and marketshare worth far more than their price?

The WebmasterWorld thread also points at this article, which states:

According to sources, Eric Schmidt, CEO of Google who just concluded his visit to China, said recently Google would enter China's market this year, and how it enters the market would depend on its talks with Baidu.

There are two options for Google, said Schmidt. One is that Google holds shares of Baidu and the other is that both sides deepen cooperation, and Google would hold more Baidu's stakes or even set up a joint venture. This may lead to Google's takeover of Baidu, turning Baidu into its subsidiary in China.

It is not uncommon for firms to go public to raise buyout bids. Paypal.com did it not too long ago before being bought out by eBay. Incidentally Paypal is opening up shop in China soon:

PayPal China will offer payments in the local currency through 15 Chinese banks and more than 20 different debit cards. The company also will offer buyer protection on EachNet, an e-commerce firm acquired by eBay in 2002.

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Barry Dillar's IAC Sells Stake in Vivendi Universal for 3.4 Billion. TheStreet reports:

"The transaction results in after tax proceeds to IAC that, by any measure, exceed the company's publicly stated valuation of the VUE securities," Diller said in a statement. "After paying applicable taxes on the transaction, IAC will have netted approximately $1 billion in cash, repurchased 56.6 million IAC shares, and obtained approximately $100 million in advertising across NBC-Universal's various networks over the next three years."

Well that ought to pay for Ask. IACI is up over 5% on the day so far.

In other business news, I think I have seen about 100 articles stating that Google is the #1 media stock, slightly larger than Time Warner, which has recently dropped the walled garden approach hoping to increase ad dollars.

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Spam Tools:
Ploppy gets evil

Paul Graham:
I think I link to every article he writes. his latest: Hiring is Obsolete, which says if you are the young & motivated type you can let the market determine your value by starting a startup instead of going to work for mega corp for lower than market value wages.

Free Book:
JenSense spots a new AdSense advertisement video which offers a free copy of Building Your Business with Google for Dummies.

Kansas City:
here I come. says Google Local ads, they are now advertising on radio and in the news paper.

Stock Market:

• Dell put 99.5 million in Red Hat Linux

• NewsGator Buys FeedDemon
• THK (Think Partnership - runs the largest SEO firm) down like 15 - 20% on the day.

Yahoo! Adds Trends to Concept Analysis:
Barry notes a Cre8asite thread about a new Yahoo! patent. I have not read it yet, but Bill states:

Amongst other things, the patent application begins to explain how MyYahoo! information might be used to help the search engine create search results.

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From the release:

InfoSearch recently introduced a content licensing model that allows its clients to license the content, generally for a one year period, with renewal rights at the conclusion of the license term. Further, InfoSearch is gradually transitioning the current traffic model through its www.articleinsider.com network from a fixed CPC (cost per click) rate to a bidded CPC rate. After these new initiatives are integrated into the existing business model, the Company expects that they will provide continued revenue growth over the longer term.

I think it will be fun to watch to see what they can make of it.

They have over $4 million in the bank and are cashflow positive, but:

• business models like Constant Content may squeeze out the marketability of the content leasing business model

• making their ArticleInsider network an open auction goes against their primary selling point of a low fixed cost. I can't imagine current customers will be pleased with the transition.

  After they do make the transition they become a second (or third) tier PPC service. Looking at how some of those search stocks are doing in the market with lowering bid prices and marketshare makes you wonder how this helps them.

• after you reach a point in market saturation there are some topics which are not as profitable to create content for. what then?
• I think creating services or multiple compelling channels that keep consumers wanting to come back is a far better longterm model than profiting from static content.
  • the direct channels get direct traffic and search traffic

  • the direct channels are more likely to build natural linkage data
  • the direct channels, which frequently update, give people an excuse to come back and view more content & ads

It is interesting watching InfoSearch, because I think their business models & being a public company show the constricting forces placed on most all SEO business models.

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Huge news for the beaten down FWHT stock, which was recently down to 4.07 from it's 52 week high of 23.94, gained about 10% on the day.

A judge declared a mistrial in a patent infringement lawsuit between Yahoo Inc. and FindWhat.com Inc. after a jury failed to reach a decision on all of the issues in the case, FindWhat.com said on Thursday.

In a note to clients on Wednesday, RBC Capital Markets analyst Jordan Rohan said the most likely outcome of the case would be a modest out-of-court settlement. He estimated that FindWhat could settle the case for around $7 million to $8 million.

Rohan said some investors had worried that a ruling against FindWhat in the case could wipe out the majority of the company's $50 million cash balance.

Most of the second tier search stocks are fading into irrelevance. Maybe this will help FWHT hang on a little longer. Also noted eariler today:

FindWhat.com noted the judge has yet to rule on the issue of whether the patent is unenforceable because of inequitable conduct committed by Overture. A hearing on the inequitable conduct issue and other motions that could impact the ultimate outcome of the case is currently scheduled for June 24, 2005.

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