I am not usually in the habit of creating posts with large scale quotations, but in this case, the information that was revealed, but buried in a longish interview (too long for most people’s itchy, "RSS Feed" attention spans :) is so important, and so validates what I’ve been saying for several weeks now, that I am going to break my own rule.
This is from an interview by TechCrunch’s Michael Arrington with Citi Bank analyst Mark Mahaney in regard to the proposed Microsoft-Yahoo deal:
MA: […] I heard that they commissioned an outside study sometime last year [that] suggested that they would have 85% plus increases in cash flow from outsourcing search to Google. […] I think you said that they would go from 4 cents to potentially up to 9 cents per search — is that right? Sort of, 40-90 dollar RPMs on searches?
MM: […] they actually said that they thought they — they didn’t name Google but it was obviously Google — that the difference in the monetization gap was 60 to 70%. That’s the first time we’d heard or seen Yahoo sign off on this specific gap.
No wonder that Yahoo has been flirting with outsourcing at least some of their paid search ads to Google: It’s instant money in the bank, to the tune of potentially 25-50% higher TOTAL cash flow! (TechCrunch rightly pointed this last one out, but omitted the underlying cause in their write-up.)
I came to a similar conclusion re:"the monetization gap" a week or so ago, just by looking at the respective search shares reported by ComScore, as well as the Q1 earnings numbers by Google and Yahoo.
Obviously, the numbers reported by Mahaney from an in depth study (that was apparently commissioned by Yahoo itself!) are much more authoritative. And to me, they therefore are the true bombshell out of this interview, though Google Q1 earnings were obviously enough of a bombshell to send their stock up over $100 in a few days.
Now beyond this very key admission, the further question obviously is how this portends for the proposed buyout of Yahoo by Microsoft. And here again Mahaney is pulling no punches, and comes to a conclusion very similar to what I wrote here. Even though the TechCrunch summary of the interview again inexplicably omits his dire predictions.
I realize that it’s easy to get caught up in the complicated and "titillating" mechanics of the negotiations (or lack thereof), but at the very end of the day the only questions that should matter are:
Does any of this make sense from a business perspective?
Will this make a difference in terms of Microsoft-Yahoo being able to compete with Google in earnest?
Will they together be able to change these dynamics that have led to what amounts to an admission by both companies that they haven’t been able to compete? (By Microsoft in that they are seeking out this deal, by Yahoo that they likely cannot avoid it, and have even been considering outsourcing to their main rival in a weak attempt to try and avoid it.)
Here is what Mahaney had to say:
MM: […] The open question and really the last area where they could have an impact on Google is just by creating a larger second place, or second tier, search engine. […] That would be an intriguing possibility here on how Microsoft/Yahoo! could have a negative market share impact on Google and search. We’re not going to know that for a year and a half or two years from today, assuming everything goes to plan. In the mean time, […] Google is starting to attack more and more aggressively […] on the display advertising market. I think it’s a reasonable bet that Google’s share of the total US advertising and the world Internet advertising is the same or maybe even a little bit greater over the next two years.
Sounds pretty open and shut to me, especially if you’ve been paying any attention to how methodically Google has been honing their search monetization.