Why Yahoo refused to buy Google for $ 5 billion
In the summer of 2002, Terry Semel, president of Yahoo , negotiated the purchase of an ambitious rival Google . Terry Semel was in absolute shock: impudent young Google executives rejected his offer of $ 3 billion, and advisers said that the real price was $ 5 billion . The figure seemed incredibly large, writes Wired magazine in the article “How Yahoo Blew It” .
To pay $ 5 billion, Yahoo would have to find all the reserves it has. Google’s revenues were about $ 240 million a year, while Yahoo had $ 837 million a year. At the time, after the crash of the dotcoms, Yahoo’s stock price fluctuated around $ 7, so Google’s price was roughly equal to Yahoo’s market capitalization.
All this was two years before Google entered the exchange. As we know, after that, shares of the search giant quickly soared to $ 500, and the market capitalization exceeded $ 150 billion. The company came in second place among the IT companies in the world in terms of market capitalization, second only to Microsoft. Now Google is more expensive than the three largest American car concern DaimlerChrysler, General Motors and Ford combined.
But then, in 2002, the decision was made by Terry Semel. This legendary Hollywood manager did not use e-mail and didn’t particularly like high technology. The price of $ 5 billion seemed unacceptably high, and Terry decided not to get involved in this business. He was hired as CEO in May 2001 to turn Yahoo into a global media empire. Five billion dollars for the algorithms and the search engine - it was beyond his comprehension. “Five billion, seven billion, ten billion, I don’t know how much they really cost, and you don’t know either,” said Terry Semel to his subordinates. “In no case are we going to do this!”
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Yahoo has a backup plan. In the research divisions of the corporation, work on its own search engine and its own advertising platform of a new generation soon began to boil. For these purposes, the second Internet search company Inktomi in 2002 (for $ 257 million) and the leader in the search advertising market Overture in 2003 (for $ 1.4 billion) were purchased on the cheap. With proprietary technology, financially more powerful, Yahoo was hoping to rein in the young competitor and defeat him in the search advertising market. It was a great plan, but Yahoo managed to completely spoil it by making mistakes at each of the stages of making the plan a reality. The result is known: today, Google controls about 70% of the search advertising market, the total volume of which is already estimated at $ 15 billion and is growing at about 50% per year.
What hurts Yahoo the most is that it could have turned out completely differently, so it was Yahoo that now controlled the search market. However, they did not work. Only a year after the purchase of Inktomi (in early 2004), Yahoo managed to integrate this search engine on its portal. While Google was preparing for an IPO, investors were looking forward to the next step from Yahoo. Yahoo shares grew by leaps and bounds. But there were technological difficulties with the integration of the Overture contextual advertising engine.
It turned out that the Overture engine was written in a hurry during the dotcom boom, and it was not able to scale to serve millions of customers on the largest website on the Internet. In addition, the technology provided for the manual approval of each advertising banner. The engine did not take into account the effectiveness of banners that were in rotation. There was no reliable built-in billing system. Thus, the system was an order of magnitude inferior to AdWords in technical terms and needed serious refinement.
The new version of Overture was developed under a separate brand Panama, but this project turned out to be a disaster. The company hired and fired several leading programmers, but things did not get off the ground. The release date of the new advertising engine is constantly shifted, and Yahoo shares synchronously fell with each postponement.
Before buying, Overture was the market leader in search advertising. Its share was twice that of Google. After two and a half years, Google was already 2.5 times ahead of its competitor. Last year was supposed to be successful for Yahoo, but everything turned out exactly the opposite: the search share fell from 32% to 24%, and profits fell. Yahoo shares for the year lost 36%.
For almost six years of his reign, Terry Semel has not approved a single major transaction, limiting himself to buying small startups. A whole month of negotiations with the social network Facebook ended in nothing. For a long time, Yahoo has been asking for the video service YouTube , but in the end it went to Google for $ 1.65 billion. Attempts to turn the Yahoo portal into a media giant cannot be called particularly successful, write Wired journalists.
The press service of Yahoo quickly responded to the appearance of this critical article in the magazine. They sent an open letter in which they admit that yes, the Panama project was somewhat delayed, but Yahoo has been making “heroic efforts” for 18 months to develop a “huge brain” for the new advertising engine, which is a breakthrough in contextual advertising technologies. At the same time, Yahoo remains the leader in many key Internet markets (mail, news, music, etc.) and continues to grow its audience by 20% per year.
To pay $ 5 billion, Yahoo would have to find all the reserves it has. Google’s revenues were about $ 240 million a year, while Yahoo had $ 837 million a year. At the time, after the crash of the dotcoms, Yahoo’s stock price fluctuated around $ 7, so Google’s price was roughly equal to Yahoo’s market capitalization.
All this was two years before Google entered the exchange. As we know, after that, shares of the search giant quickly soared to $ 500, and the market capitalization exceeded $ 150 billion. The company came in second place among the IT companies in the world in terms of market capitalization, second only to Microsoft. Now Google is more expensive than the three largest American car concern DaimlerChrysler, General Motors and Ford combined.
But then, in 2002, the decision was made by Terry Semel. This legendary Hollywood manager did not use e-mail and didn’t particularly like high technology. The price of $ 5 billion seemed unacceptably high, and Terry decided not to get involved in this business. He was hired as CEO in May 2001 to turn Yahoo into a global media empire. Five billion dollars for the algorithms and the search engine - it was beyond his comprehension. “Five billion, seven billion, ten billion, I don’t know how much they really cost, and you don’t know either,” said Terry Semel to his subordinates. “In no case are we going to do this!”
')
Yahoo has a backup plan. In the research divisions of the corporation, work on its own search engine and its own advertising platform of a new generation soon began to boil. For these purposes, the second Internet search company Inktomi in 2002 (for $ 257 million) and the leader in the search advertising market Overture in 2003 (for $ 1.4 billion) were purchased on the cheap. With proprietary technology, financially more powerful, Yahoo was hoping to rein in the young competitor and defeat him in the search advertising market. It was a great plan, but Yahoo managed to completely spoil it by making mistakes at each of the stages of making the plan a reality. The result is known: today, Google controls about 70% of the search advertising market, the total volume of which is already estimated at $ 15 billion and is growing at about 50% per year.
What hurts Yahoo the most is that it could have turned out completely differently, so it was Yahoo that now controlled the search market. However, they did not work. Only a year after the purchase of Inktomi (in early 2004), Yahoo managed to integrate this search engine on its portal. While Google was preparing for an IPO, investors were looking forward to the next step from Yahoo. Yahoo shares grew by leaps and bounds. But there were technological difficulties with the integration of the Overture contextual advertising engine.
It turned out that the Overture engine was written in a hurry during the dotcom boom, and it was not able to scale to serve millions of customers on the largest website on the Internet. In addition, the technology provided for the manual approval of each advertising banner. The engine did not take into account the effectiveness of banners that were in rotation. There was no reliable built-in billing system. Thus, the system was an order of magnitude inferior to AdWords in technical terms and needed serious refinement.
The new version of Overture was developed under a separate brand Panama, but this project turned out to be a disaster. The company hired and fired several leading programmers, but things did not get off the ground. The release date of the new advertising engine is constantly shifted, and Yahoo shares synchronously fell with each postponement.
Before buying, Overture was the market leader in search advertising. Its share was twice that of Google. After two and a half years, Google was already 2.5 times ahead of its competitor. Last year was supposed to be successful for Yahoo, but everything turned out exactly the opposite: the search share fell from 32% to 24%, and profits fell. Yahoo shares for the year lost 36%.
For almost six years of his reign, Terry Semel has not approved a single major transaction, limiting himself to buying small startups. A whole month of negotiations with the social network Facebook ended in nothing. For a long time, Yahoo has been asking for the video service YouTube , but in the end it went to Google for $ 1.65 billion. Attempts to turn the Yahoo portal into a media giant cannot be called particularly successful, write Wired journalists.
The press service of Yahoo quickly responded to the appearance of this critical article in the magazine. They sent an open letter in which they admit that yes, the Panama project was somewhat delayed, but Yahoo has been making “heroic efforts” for 18 months to develop a “huge brain” for the new advertising engine, which is a breakthrough in contextual advertising technologies. At the same time, Yahoo remains the leader in many key Internet markets (mail, news, music, etc.) and continues to grow its audience by 20% per year.
Source: https://habr.com/ru/post/4967/
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