Yahoo’s Desperation

The bomb dropped late wednesday night – Yahoo, in an attempt to show that there are other suitors besides Microsoft, announced that they were running a joint advertising experiment with Google.

In a nutshell, Google will be serving up 3% of the paid ads on the Yahoo search engine (in the United States only) for the next two weeks. Assuming the joint venture is successful, (which presumably means that the Google ads perform better than the Yahoo ads) Yahoo would join operations with the sliding AOL, which already uses Google technology for paid advertising (further complicating the picture, Google owns a 5% stake in AOL). Time Warner would take a 20% interest in the venture, paying in cash. Then, Yahoo would use that money to buy back its own shares in the $35 to $40 range to raise the stock price, a significant premium over the existing Microsoft offer which hovers just below $30 per share.

Sound convoluted? You bet. It’s almost as if Yahoo is trying to throw out as many big names as possible (Google, Time Warner, AOL) in order to send a message to shareholders (and Microsoft) that plenty of other studs want to take them to the prom.

There’s only one problem – it won’t happen. At least not in the way it is currently being presented.

If Google and Yahoo were to combine advertising platforms, which is the logical conclusion when Yahoo is measuring Google’s ad serving technology against their own, the advertising alliance would control over 80% of online advertising in the U.S. Analysts are already proclaiming that this would not pass regulatory scrutiny, which would leave Yahoo right back where it started. Microsoft has already pointed this out, but they are still seen as the evil interloper in all of this, so apparently they don’t count.

I can’t tell you what’s going to happen – but I can tell you that beneath all of Yahoo’s name-dropping and exciting potential alliances I detect the underlying stench of desperation.

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