Carmi Levy: Yahoo's options, now that it appears to have some

CARMI LEVY, Senior Vice President for Strategic Consulting, AR Communications: Ooh, that is indeed the $64,000 Question.

There's a short answer; there's a long answer. Yes, it can survive. Let's face it, Yahoo is still a company that, to a large extent, can make money. Its fundamentals remain strong, and it simply fell well behind the leaders in the market. That having been said, however, it can very easily survive in a potential post-AOL integration for three years. Probably four or five or as many as it wants to. Will it be dominant? That's a much more difficult question to answer. I don't see anything transformational in what AOL brings to the party that would give Yahoo differential ability to overcome its current limitations.

You can say the same thing about Microsoft. Of all the companies that are currently pursuing Yahoo today, not one of them truly offers a revolutionary technology or process or market position that would allow Yahoo to overcome its current malaise and leap-frog Google, in terms of converting all of that traffic into revenue within a two- to three-year timeframe.

SCOTT FULTON: Because let's face it, all that revolutionary technology that you'd expect for a company to be able to do, is being developed by small companies that get acquired by these large companies that end up doing nothing with them.

CARMI LEVY: That's right, and time and again, we've seen large companies buy small, agile innovators, and fail to properly integrate them or leverage the technology or process that they've purchased. Yahoo is just as guilty as every other company in the market; certainly Yahoo, Google, and Microsoft, each have its own examples. But the time for Yahoo is clearly past. Yahoo no longer has that critical mass to be seen as a viable steward for small companies looking to be acquired. Certainly, if I were a startup, I would rather have Google, or -- dare I say it -- even Microsoft come after me than Yahoo at this point in time, because at least in those two cases, you at least stand a chance of your technology someday seeing the light of day. Whereas with Yahoo, chances are, it's just going to get lost in the mess that the company currently is in, and they'll essentially take your money and run.

SCOTT FULTON: Well, on Thursday, I compared from a business model standpoint the idea of spinning off AOL, and then having the spinoff merge into Yahoo, as a kind of NBC Universal-style situation. I remember an era not too long ago when analysts and investors had written off both NBC and Universal as pointless in the face of changing media.

CARMI LEVY: Yea, and boy, aren't they licking their wounds now?

I think it behooves the industry to take note of one thing: Everyone believes that Google has run away with the game, that Google has won, that there's no point in even jumping in at this point; that everyone else should simply fold up their cards and go home. Truth is, nothing could be further from the truth, because the game is only just beginning. We are only beginning to understand how convergence of content and convergence of media is going to influence how we consume that content, how we pay for it, and how we interact with it in the years to come.

Outside of who leads in search or who leads in converting search into advertising dollars, we're still only on the first square of the Chutes & Ladders game, and there are a whole other 99 squares left to play, and there's no guarantee that Google is going to be on by the time we get to the top of the board. So now is the time for large, well-capitalized companies to be making large bets like this, to position themselves for a converged world where we no longer differentiate between television and Internet, when one pipe serves multiple forms of content through to multiple forms of devices, and we interact with them in ways that are much more extensive than we interact with them today.

Certainly, a Yahoo + AOL deal -- more so than Yahoo + Microsoft -- would give Yahoo a fighting chance of starting to bring a strategy like that to market, or at least position the company for that very exciting, very converged future.

SCOTT FULTON: Back in February when this whole thing started, when I was doubting the viability of Microsoft + Yahoo, people were telling me, "You know, there are worse combinations." One of them has cropped up, by virtue of The New York Times' theory of Microsoft's counter-bluster, which everybody is denying but speculation is being fueled like a little tornado -- that Microsoft will ask for help from none other than Rupert Murdoch, and that they will create between them this kind of Frankenstein "MyMHooMicro-S-Space-N-Soft" which, I suppose, would have a joint board of directors...It seems that not only is that kind of a nightmare scenario, but that would be completely contrary to the whole point of Microsoft's having entered this thing, wouldn't it? The worst nightmare for Microsoft is that Yahoo survives stronger, and if there's any worse possibility than Google or AOL fueling a stronger Yahoo, it would be Microsoft fueling a stronger Yahoo.

CARMI LEVY: Yes, but I think Microsoft at this point has recognized that if it goes it alone, it may not be able to consummate the deal at all, so its choice is, either make a deal with the devil and deal with the implications afterwards, or don't make a deal at all.

SCOTT FULTON: And wouldn't it be preferable then to not make a deal at all? It defeats the purpose of having started to make the deal; [Microsoft] wanted to remove the impediment and have it be a two-man show, itself and Google.

CARMI LEVY: But Google refuses to play, to come out and actively participate in the process, so Microsoft won't get that satisfaction, and I think there's also risk to Microsoft's brand at this point: If it goes to the wall and fails to bring something home, whatever that something is, then it risks losing face in the market, and then the next time it announces a potential acquisition or goes searching for an acquisition target, it will be taken less seriously than it would have if it actually succeeded in some sort of Yahoo deal.

So it's increasingly more about ego and less about numbers, in that Microsoft, in order to preserve its reputation as a major player, isn't willing to go home empty-handed, and is getting creative about who it can partner with to make sure that some kind of deal gets consummated.

SCOTT FULTON: As much as I lend credence to this more positive outcome from Yahoo's perspective, being folded into AOL, I see also maybe a possibility of a negative possibility for just about everybody, and it works like this: Microsoft cannot, after some stage, be able on its own to up the ante and come up with more value to please Yahoo shareholders. And it can't reliably make a deal with the devil, because let's face it, Yahoo would be better off being absorbed by Fox Interactive Media entirely than by Microsoft and FIM. So seeing that deal probably wouldn't take place, Microsoft would probably start to back off of its advances.

And having stopped its advances, then Yahoo's own value starts to fall, because then the shareholders see no future in it besides the one that Jerry Yang has put forth, which is all in lower-case and doesn't seem to make any sense...And all that process starts to fold in on itself, and Google meanwhile continues to do nothing, and watch everybody else collapse on themselves, and the galaxy ends up one bright star and a whole bunch of very dark ones.