Yahoo-Microsoft Deal Inevitable?

Is the Yahoo-Microsoft Deal Inevitable?  Ballmer said a deal between Microsoft and Yahoo! Inc. may still make economic sense for shareholders of both companies.  No need to review the already well-known history of this story.  Why is Microsoft waiting?  First, there is the Yahoo-AOL deal.  Second, is the DOJ investigation into the Google-Yahoo advertising deal.  Is this the end of an era?  “Do you Yahoo?” has been replaced with “Google-it.”  The DOJ has conducted literally tons of interviews these conversations have undoubtedly gone deeper than just the deal.  Finally, the DOJ has a solid understanding about why Google has a monopolistic path. Continue reading

Tech-Crunch Layoffs – Is it a Financial Crisis or a Clean-Up Opportunity, or Both?

So the economy took a nose-dive this past month.  Yahoo’s stock is down more than 35% in the last 30 days, Google is down 16% and ebay is down 34%.  The Online Media sector is taking a beating for sure.  Yahoo! is laying-off 1,500 people and eBay already laid-off 1,500.  But how many of the companies doing lay-offs are financially strapped or in trouble?  At this point, any company can announce a ‘me-too’ lay-off without having to provide much explanation.  A lay-off now would actually be perceived as an indication of good fiscal management!  So for many companies this is a great opportunity to ‘cut the fat’ and get away with it.  But look closely and you will see that while some companies are eliminating positions, they will be creating new ones elsewhere in the company.  Out with the old and in with the new.  RIFS are fundamental.

The economy took a nose-dive this past month.  Yahoo’s stock is down more than 35% in the last 30 days, Google is down 16% and ebay is down 34%.  The Online Media sector is taking a beating for sure.  Advertisers are cutting budgets and channeling the remainder of their spend where they can specifically measure results.   There is no question that the ride has gotten bumpy and will likely get worse before it gets better.

So Yahoo! is laying-off 1,500 people.  EBay already laid-off 1,500.  Now Wikia is laying off 30% of their team after Pandora laid-off 14% of theirs.   The image I am providing is the Tech Layoff Scorecard from CNET.  You can find it at http://news.cnet.com/8301-1001_3-10069195-92.html.  This chart illustrates some of the recent lay-offs that have been reported across the industry and it is updated daily:

CompanyDateHow ManySanDisk10/22/2008TBAManiaTV10/22/200820 of 70iMeem10/22/200825% of 80Mahalo10/22/200810%HP10/22/200824600 over three yearsYahoo10/21/200810% of ~14,300Ticketmaster10/21/200835%Comcast10/21/2008300Softchoice10/20/20086.5% of 958Veoh10/20/20080Wikia10/20/20083Autotrader10/20/200869Texas Instruments10/20/2008possibly 300Sprint10/17/2008ongoingJaxtr10/17/200813Zivity10/17/200833%Zillow10/17/200825%SearchMe10/17/200820%Heavy10/17/200814%Lenovo10/17/200850 in Morrisville, N.C.MPC Computers10/17/2008200Hi510/16/200810-15%Sirius XM10/16/200850Pandora10/16/200820Adbrite10/16/200840%Tesla Motors10/15/2008Detroit officeSkyRider10/15/2008AllAppcelerator10/15/20086Jive Software10/14/200833%Redfin10/14/200820%Seesmic10/10/20087Lulu10/9/200824Micron10/9/200815%eBay10/6/20081000Gawker Media10/3/200814%

VCs and PE firms are handing down the word to their portfolios: ‘tighten your belts boys, and stretch your funding for the next three years.’  The wells aren’t dry, but the likelihood of exits in this sector with this market just got pushed out.  It’s definitely time to shine the spotlight on venture-backed tech companies, that promised high-value returns, who still haven’t figured out how to make money.  VCs and PEs take this time to reassess their portfolios.  They’re already invested pretty heavily in the space so now it’s a matter of suring up those investments.  How strong are the existing management teams in place?  Are we going to rescind the next traunch?  Should we make some structural changes at the leadership levels?  One thing is for sure … VCs are getting active with their companies.

Is this the next bubble-burst?  Not necessarily.  We all know that the economy is in a recession.  How many of the companies doing lay-offs are financially strapped or in trouble?  Some of them are as we can see or estimate.  Some of them, like Yahoo and eBay need to scale-back just to maintain shareholder value or keep profitability at expected levels.  Other smaller venture-backed companies need to scale back costs until they can get their revenues up to support the business.

But when big companies RIF (reduction in force) it also opens the door across the industry.  At this point, any company can announce a me-too lay-off without having to provide much explanation.  In fact, at this point in time, a RIF will likely be perceived as an indication of good fiscal management in response to economic uncertainty, inflation in our sector and the forecasts of decreased spend from advertisers.  So for many companies this is a great opportunity to ‘cut the fat’ and get away with it.

RIF opportunities come in cycles.  When big companies do a layoff – like Yahoo did a year ago – other companies follow suit so they can move under the radar of the headliner.  Do all of these companies need to RIF?  Nope.  In fact, look closely and you will see that while some of these companies are eliminating positions under the guise of good fiscal management, they will be creating new ones elsewhere in the company.  The East Coast Sales Director will be replaced by the National Business Development Manager.  The Global Market Strategy Director will be replaced by the Corporate Product Marketing Director.  These changes don’t necessarily happen at the same time.  Smart companies let 90 days pass between the two moves.  This allows the RIF to happen in one quarter, and the opportunity to report the impact, before going into the next quarter when the re-expansion occurs.  Out with the old and in with the new.

So with the current lay-offs in the industry, what does that mean for companies that want to grow – great hiring opportunities?  Yes and no.  RIFS don’t usually flush the good people, they flush they expendable people while the good people get retention bonuses or extra stock options.  The market will get flooded with mediocrity and one man’s fool will look like another man’s gold.  I am not saying that there won’t be any good candidates put out to pasture, but hiring managers will have to do a lot of interviewing to find them.  Tactically, the opportunity to hire is to go at the companies that just did layoffs and try to hire the retained people while they feel unglued.  Good recruiters know this already.

But in the end RIFS are fundamental operating procedures – and opportunistic initiatives that are taken when the elephants are under the microscope.  Don’t let 400 point daily swings in the Dow and RIFs make you think that the bubble is coming.  Think a quarter or two out.  There are some very good technologies out there, game changers.  There are a lot of dollars invested in some real businesses and accomplished teams.  Advertisers need to make money and need now more than ever to invest in marketing and sales to do it.  It’s bumpy now, and will stay this way for a while.  But look carefully through the dust being kicked-up and see the movers and shakers that are in motion beyond the RIFS.  It’s probably not a ‘pop’ you’re hearing but plans for more growth.

Advertiser Control Over Ad Spend and The Swinging Pendulum

There is big pendulum swinging over who controls spend in Online Media.  The economy has taken a swinging nose-dive and everyone is looking for signs of fall-out.  One thing that is for certain, Advertisers are aggressively taking back control over their spend.  There will be budget cuts of 15% of more across the board in Q4.  The place where those cuts are starting is anyplace where an ROI can’t directly be derived.  If a publisher can’t prove a return they will lose the spend.  Response-based advertising is probably the most insulated area of the industry.  This means a push from CPM towards CPC and CPA, even for display.  Advertisers will be driving the pricing models and publishers will have to buckle in order to sell inventory.  With less money to spend, more pressure to perform, hundreds of publishers and networks competing for the reduced dollars at hand…advantage advertisers.

Here is the story…

My good friend, Jonathan Ewert says that every four years there is a great big pendulum that swings in our industry.  On the end of that ball is the influence factor over who controls the dollars in Online Media.


In the late 90s it was clearly the advertisers who had the control.  As they began to test the new medium and brought dollars to the internet in increasing amounts, advertisers tested all kinds of mechanisms that the publisher could come up with.  But it was the advertiser that dictated what measured performance, what the price they would pay and what services they expected in terms of campaign management and reporting.


Then the pendulum swung in the other direct – towards the publisher – as online media shifted from “new media” to internet advertising.  “Standards and policies” were written.  Publishers started driving pricing; and ad server utilization, campaign management provisions and acceptable reporting became organized and structured according to what Publishers were willing to provide.  Advertisers had to start working with what was available, throwing more resources and time at managing the diversity that clients were demanding which made the process of managing internet advertising increasingly more expensive.


Competition for inventory rose steadily once again following the recoil of the bust and price inflation followed.  The explosion of ad networks broadened advertisers’ options and the result was a drastic overload on resource requirements to manage just a single campaign.


While all of this was going on, Search outpaced display as advertisers began to recognize the value of response-based advertising and Google’s climb to the top of Everest was off to the races.


Fast-forward to the beginning of 2008 and you had topped-off CPMs, somewhere between 200 and 400 ad networks (depending on who is counting) and Google controlling 60+ % of the addressable Query stream on the Internet – 90% collectively controlled by Google, Yahoo and MSN. 


Throughout the first-half of 2008, prices hit all time highs in search as traffic growth online slowed and competition for popular keywords rose.  CPMs for targeted quality display inventory trumped the last four years and publishers began to push to reclaim inventory from the networks that had been previously aggregating and watering down their value.


Then the big ball started to swing.  With the advertiser no longer able to increase spend in search without compromising ROI and publishers reclaiming display inventory in order to elevate CPMs, something had to change.  Additional factors at play, aggravating the situation, was the continued consolidation of search (think Google’s increasing share of the Market – the Yahoo deal, Google running on ASK, etc.), the intense-resource demand on advertisers associated with managing disparate data sources, and publishers trying to push CPMs while a massive number of networks commoditize eyeballs. All of this equates to the advertisers almost hitting a breaking point.


Then the economy took a swinging nose-dive and everyone started to run around asking themselves what is the fall-out result for online advertising.  Is this the next bust?  Here come the layoffs.  How many VC-backed companies are going to go under which have promised huge returns with no revenues to prove it?  One thing that is for certain, Advertisers are aggressively taking back control over their spend.


You can figure there will be 15% cuts in budgets across the board in Q4.  At least that is what some of the larger advertisers are talking about and that is what some of the networks are already hearing.  The place where those cuts are starting is anyplace where an ROI can’t directly be derived.  Lookout publishers – if you can’t prove a return you’re going to lose spend. 


Response-based advertising is probably the most insulated area of the industry over the next 2 to 4 quarters given our economic environment.  Advertisers have to advertise to keep generating business, but branding online is going to suffer.  This means a push from CPM towards CPC and CPA, even for display.  Advertisers will be driving the pricing models and publishers will have to buckle in order to sell inventory. 


Furthermore, diversification of spend across less expensive, higher-returning publishers and networks will also draw attention.  This means that advertisers who have hit the asymptote of their returns on Google or the major display ad networks – when spending a dollar no longer returns $1.50 but now returns $1.25 – will start to look elsewhere to maintain their margins.  With smaller budgets to spend, ROI pressure will become intense.  We may even begin to see performance-based commissions between advertisers and agencies as competition for control over the spend increases between agencies.  Certainly this will be a likely case in the SEM arena.


So the pendulum, which started to swing in the beginning of Q2, went full tilt when the market dove.  Advertisers now hold the cards and publishers and networks that recognize the truth will step up and work with them to maximize the value of their relationships given the pressures present in the economy. 


With less money to spend, more pressure to perform, hundreds of publishers and networks competing for the reduced dollars at hand…advantage advertisers.