Twitter was all a-twitter this morning with the rumor that Google (GOOG) was among the potential suitors for Yahoo! (YHOO). Of course, we've all learned to take Yahoo acquisition rumors with a grain of salt. There are few internet or media players who haven't been rumored as Yahoo acquirers in the past three years and this is hardly the first time that Google's name has come up.
That said, it's worth taking a look at pros and cons to a Google acquisition of Yahoo (or GooHoo as it may be).
I'll start with the assumption that Google would not want to acquire Yahoo in its entirety. It might help finance an acquisition, with the understanding that it would keep certain parts and offload others to a private equity firm or other buyers. but I don't see any likelihood that it would acquire and keep the company as a whole.
Let's start with the cons - why wouldn't it make sense for Google to buy Yahoo?
- To start, Google is a technology-driven company, not a media company. Success in media rarely comes from an algorithm (and when it does, in theory, Google is supposed to "punish" the publisher)
- Google has little experience with large acquisitions. YouTube was reasonably large for Google, but it was focused on doing one thing. Yahoo dwarfs YouTube and consists of many, many businesses
- Beyond corporate culture differences, the two companies operate at different speeds. I never like to see growth companies acquire slower-moving businesses and Yahoo would be like a boat anchor to Google
Now, let's look at why a Google acquisition of Yahoo could make sense:
- With its search engine business fairly mature, Google needs to find new opportunities for growth. And if it wants to compete with Apple and Amazon (and it clearly does), it needs to have stronger content offerings.
- Yahoo has recently made strong inroads in original video content, boasting the top ten slots for original web series in September. Meanwhile, YouTube is striking deals with numerous content providers to deliver exclusive original content. Adding Yahoo's original video content to YouTube would create the clear number one in web video content.
- Yahoo Finance remains the top financial site on the web. Despite strong efforts from Google Finance, Yahoo still blows it away in terms of traffic.
- Yahoo Sports trails only ESPN in traffic among sports sites.
I could see a scenario under which Google, in conjunction with a consortium of P/E firms acquires Yahoo. The Asian assets would be sold or spun off. Google would retain Yahoo Studios video assets. Google might retain select assets such as Yahoo Finance, or, more likely would strike a deal to sell ads on all the other Yahoo sites.
This would strengthen Google's position vis-a-vis Apple and Amazon, while not requiring them to take over management of a large, unwieldy Yahoo that needs to be disassembled. It would keep Yahoo out of the hands of Microsoft (though i really don't think Google views Microsoft as a competitor in the consumer segments of the market)and provide a much wider base of pages for Google to sell ads against, initially on the web, but increasingly on mobile as well.
What's the likelihood of this? I'd say less than 20%. Google is much more likely to put in a lowball bid, if any, as a means of driving the eventual price up or, possibly forcing the eventual acquirer to do a deal with Google in return for them stepping aside. I see some similarlities to Google's lowball bid for the FCC auction of wireless spectrum assets, where Google participated largely to influence the terms of the eventual deal.
So, should Google buy Yahoo? I don't know. Maybe we should ask Siri.