THAT Deal - A Perspective

Since my return to NZ, I have been asked by several people to comment on the Microsoft / Yahoo deal that was signed off whilst I was away.

I have checked back on this blog and the last post which signalled the deal was posted five days before it actually happened. The only surprise is that it took so long to close.

The deal itself is an interesting one since it does not involve an actual M & A. It is built instead on a commercial deal that enables Yahoo to continue to develop its online real estate whilst providing Bing (sorry, Microsoft) with access to Yahoo's advertising sales teams.

It gives the 'Search' capacity of Microsoft a more significant market share. Google is still out there, but the gap has closed and the market is now ready for real innovation to be able to differentiate between the two.

The Search battle ground therefore is now nicely set. And the timing is sweet.

Pingar's time has come. And all will be revealed on 19th October.

On the 'Strip'.

It's Yahoo time

It's been a long time coming but I expect an announcement sometime soon of an advertising deal between Microsoft and Yahoo.

Microsoft's shares fell 8% overnight after a pretty poor set of quarterly sales figures. Yahoo's sales figures announced earlier this week also failed to impress. Meanwhile, Google marches on.

So I expect some sort of deal to come out soon. It is clearly in both Microsoft's and Yahoo's best interests. They can then focus on a single key competitor.

That battle though has only just begun.

Office Lite

Microsoft is hosting its Worldwide Partner Conference in New Orleans, this week. I was very tempted, but events in NZ just did not allow enough time.

I had expected a number of 'announcements'. So on Day 1, we get quite a significant one. Microsoft are launching a free 'Lite' version of Microsoft Office online in 2010. I guess this is all part of the Software AND a service mantra that Steve Ballmer has been promoting for some time now. It certainly increases focus on the Cloud and suggests that the gloves might be coming off in the battle with Google. Certainly, a 'lite' version of Office poses a significant challenge to Google Apps.

It's all warming up quite nicely. I am expecting more 'announcements' over the next three days as Microsoft position themselves for the slug fest ahead.

Interesting days indeed.

Focus on Search

Google's announcement overnight that it intends to take on Microsoft in the OS market, comes as no real surprise. It was interesting to note that Microsoft's share price stood steady.

One might expect Steve Ballmer to become defensive and invest more heavily in Windows 7.0 development. That would be a mistake. Bing is already beginning to make an impression on Google's search numbers in the States. And with FAST Search being integrated into SharePoint and no doubt further Microsoft apps in the future, this is where I believe the battle lines are really drawn.

My own take is that Microsoft has finally begun to work to a search roadmap that will lead to positive results. Acquiring search market share back from Google is now therefore back in Microsoft's own hands. Deploying significant resource in Google's own backyard might just be the strategy to offset last night's news from Mountain View.

Battle in the Cloud

Following yesterday's post on tonight's (NZ-time) Azure presentation in Swansea, I read an interesting article on Reuters today.

Google has introduced software to make it easier for businesses using Microsoft's Outlook to switch to its Web-based communications and collaboration products. Google says that its new software can easily transfer data from a Microsoft Exchange server to its own cloud-based online service.

The new product allows business users to continue using the Outlook client for email and other tasks, but the back-end functionality and data storage would move to Google, instead of residing on a company's internal servers running Microsoft software.

The product, Google Apps Sync for Microsoft Outlook, will be available immediately as part of the existing Premier version of Google apps, which costs US$50 per business user but is also available to educational and nonprofit customers for free.

This is not so much a battle, as a preliminary skirmish. Expect plenty more of the same however as the Clouds gather. At the moment, it is 'handbags at dawn'. Down track, the battles for eyeballs, hits and dollars will become much more intense.

Online Newspaper Subscriptions?

The timing of the previous blog was coincidental. Minutes after publishing it, I can across the following story from Editor and Publisher.com

The nation's top newspaper executives gathered at a Chicago O'Hare airport hotel today to discuss charging for online content and protecting intellectual property.

The summit was initiated by the Newspaper Association of America in response to the recent hearings on Capitol Hill. John Sturm, the NAA's CEO, told E&P the event's purpose was to bring together top publishers to "discuss how best to support and preserve the traditions of newsgathering that will serve the American public."

Sturm said those gathered discussed such topics as protection of intellectual property rights, as well as possible approaches to Congress and Administration to address these and other issues.

I took this as being a slight nod in the direction of Google and others. Intellectual properly and content rights management is becoming a more central area for online debate. It is one that Pingar welcomes. The Newspaper Association of America's concerns are well founded. Democracies require fiercely independent media. That relies on having the resources necessary to find the stories, research and then publish them. That costs. So revenue generation AND protection becomes more important.

It is a debate to follow.

Google Settle

A interesting article in this morning's National Business Review.

Google has finalised an out-of-court $US125 million settlement with book publishers for scanning their titles without permission, and the NZ Copyright Council has begun taking local claims on the cash.

Copyright Licensing Ltd, the vehicle set up by the Book Publishers Association of NZ for dispersing copyright fees, has just opened its website for New Zealand publishers to make claims under a $US125 million worldwide settlement reached between publishers and Google.

An interesting glimpse into a key difference between the Google and the Pingar business models. Pingar will only search data which is owned by content owners who are contracted to Pingar. Period.

Quality data. Quality returns. And happy content owners....

Yahoo Boohoo

So Google has canceled plans for a search advertising partnership with Yahoo amid opposition from antitrust regulators and advertisers.

According to Reuters this morning, Yahoo has expressed dismay at Google's decision, saying it was "disappointed that Google has elected to withdraw from the agreement rather than defend it in court."

The U.S. Justice Department, in a statement issued on Wednesday, said it had told Google that it planned to file a lawsuit to block the deal on antitrust grounds.

"Had the companies implemented their arrangement, Yahoo's competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads," the Justice Department said.

This is no great surprise. The only question now is how quickly Microsoft will be back at Yahoo's front door. This time however, their offer will be significantly lower than their bid earlier this year. And this time round, it will be much more difficult for Yahoo's CEO to say no. Tough times ahead then.

Browser Wars - Let Battle Commence

The battle between Google and Microsoft to dominate the online space looks like it might just have taken a new twist.

Microsoft's newest browser is still only in beta, but it already has the advertising world in a tizzy. Its "InPrivate" set of features on Internet Explorer 8 out this week has publishers, marketers and industry advocates worried that it could block their ability to distribute, track and even monetize what the Interactive Advertising Bureau values as a $21.2 billion-plus internet-ad industry. Target = Google? Maybe....

At the same time, Google is launching an open source web browser to compete with Internet Explorer and Firefox.

The browser is designed to be lightweight and fast, and to cope with the next generation of web applications that rely on graphics and multimedia. Called Chrome, it will launch as a beta for Windows machines in 100 countries, with Mac and Linux versions to come. The new browser will help Google take advantage of developments it is pushing online in rich web applications that are challenging traditional desktop programs. Target = Microsoft Desktop? Maybe...

Interesting.

UK Founders Forum Event

An interesting take on perceptions from some of the UK's leading web entrepreneurs. A YouGov poll was taken at last week's third annual Founders Forum event, which was attended by 100 entrepreneurs including Charles Dunstone, Stelios Haji-Ioannou and Bebo co-founder Michael Birch.

Britain's leading internet entrepreneurs see the dominance of Google as the biggest threat to their business and would like to see Yahoo! acquired by Microsoft to help counter the threat. Some 44 per cent of those attending said they saw search giant Google as the biggest threat to their company's internet growth. Just 6 per cent cited lack of video bandwidth, while another 6 per cent said traditional media companies.

And nearly half of the group thought the economic slowdown would have a positive impact on their business by accelerating migration to the web, versus 29 per cent citing a negative impact.

I'm not sure Google's dominance would rank so highly in New Zealand. My own feeling is that for most NZ web entrepreneurs, there are greater challenges to face. Distance to market, size of market and access to capital are just three. It's about building scale. Some NZ companies including Xero and Ponoko seem to have recognised that and are executing strategies to tackle that. The numbers however are small.

A comparative poll amongst NZ web entrepreneurs would be an interesting exercise.

Yahoo 2 - U - 2!

So Microsoft offers to buy Yahoo for $44.6bn in cash and shares.

Let's forget the fact that the offer is 62% above Thursday's closing price and the fact that Yahoo cut its revenue forecasts earlier this week and said it would have to spend an additional $300m this year trying to revive the company.

I really do not see how this deal will work. If it goes through (and that is a big if), I cannot quite work out how the two business models map. One could be cynical and say the move is motivated by Microsoft's desire to confront Google 'head to head' in the online search and advertising space. I am not convinced this is the best vehicle to do that.

The word on the Street is that whilst competition watchdogs might analyse the bid, they will probably not prevent it, given Google's dominance in this space.

I blogged a couple of weeks ago about Microsoft's proposed acquisition of enterprise search engine FAST. I understand those synergies well. That was a smart move by Microsoft.

Not so today's announcement regarding Yahoo. At this point, I do not really get it. It's a lot of money for a company who has struggled in recent years to compete with Google. It will be interesting to watch how this one pans out.

Facebook Gets Traction

Microsoft's recent investment in FaceBook values FaceBook at about US$15 billion. Is this realistic?

Anecdotally, I have found myself using FaceBook more recently than any other social network. Others have too. Microsoft's own employees have been using FaceBook long before any investment was discussed. The same applies to the leaders of New Zealand's interactive advertising community. FaceBook would appear to be their 'social network' of choice.

What impact might this have on the wider Internet landscape, particularly on Google? Social networks and search are two separate functions for most users, but will that last? Can search be integrated into social networks in a way that is seamless and adds value to users? I believe it can.

The skirmish that has prompted so much corporate and investment activity in this area can only grow as these platforms consolidate. From my perspective, and with the positive impact for its advertising network under the terms of its share purchase, Microsoft has got a bargain.

Primitive Search?

At the same time this week that Google was reporting a surge in net profits - net income climbed to US$1bn in the first three months of 2007, up from $592m on a year earlier – hakia, a new meaning-based search engine released an interesting survey in New York.

92 percent of web-based ad experts say paid search advertising is only evolved halfway at best. Of the 221 polled on April 11-12 at the Search Engine Strategies 2007 Conference in New York, 71% say the industry is half-way there, 21% responded the industry is very primitive; and just 3% believe the industry cannot get any better. Five percent of respondents were not sure.

According to Melek Pulatkonak, president and COO of hakia, “The reality is the search industry still has a long way to go when one considers that the average search takes 11 minutes and half of searches are abandoned. The paid-search advertisers’ vote reflects this sentiment.”

What does this mean for Pingar?

I believe it suggests that there is a major opportunity for start-ups and mash-ups in this space. Had I voted in the same poll, I would probably have looked very seriously at the ‘very primitive’ option. I do not really believe that ‘paid search advertising’ has evolved to any level of depth at present.

Longer term, search must become significantly more sophisticated in terms of both the analytical tools it can interface with and the application output it can generate. At the moment, it rarely delivers more than a list of links which the user then has to interrogate. The real value of search will become apparent when the technology moves beyond this indexing mode. The creation of analytical tools which can filter search query results and publish them dynamically through new and innovative applications will create new opportunities for the user, the content owner and the advertiser alike.

The companies who can capture this value will determine the future of paid search advertising and the business models it will induce.