BUSINESS BLOGS
BUSINESS BLOGS
category: business
04 Feb 2008

One of the other arguments in the “YHOO should remain independent”camp is that Yahoo! Asian Alliance Agreement.

In essence, it argues that Yahoo! can somehow:

1- spin off Alibaba and / or Yahoo! Japan.

The problem here is that such sales would not be tax-free. The company can look into something called the Morris Trust act, but good luck there. We’ve been introduced to the Anti-Morris-Trust act to deny exactly that kind of move.

But the bigger issue is the argument they juxtapose to this strategy, which is

2 - Yahoo! should outsource search to Google.

Now that’s crazy talk. Here’s why:

Google’s ascendancy to become this mammoth online advertising juggernaut came precisely because in 2000 Yahoo! decided to use Google as its default search engine. Eventually, Yahoo! realized this was a catastrophic move and stopped that by buying Inktomi (for organic search algorithm) and Overture (for paid listings) but it was too late.

By opening up search to Google on the world’s biggest market (the US) on the world’s biggest property (Yahoo!), Yahoo! handed the world to Google on a golden platter.

Anyone who today argues that Yahoo! should hand off its search (again) to Google is essentially biting off their nose to spite their face. In other words, one of the only things that Yahoo! has going for itself is its relative (to Google) strength in Asia.

By giving up search real estate to Google in Asia - today the world’s fastest web market - Yahoo! would only show how dumb they really are. In other words, this would only make Google stronger. In fact, it is this strength that will make a MSFT/YHOO deal go through because Google is so strong that it can allow itself to underwrite such a move.

As I have said: so long as Google and Yahoo! are comparables on the stock market, Google will outperform because it is a faster growing stock with a dare-I-say-it better management.