Microsoft cobbles together a 'Plan C' for online search

Just as a team of white knights are preparing a new round table of leadership for Yahoo, and riding off to rescue the Microsoft buyout, Microsoft inexplicably sends an intentionally mixed message on Sunday implying it would rather not be rescued.

In a move that could be considered unprecedented, for the most part, due to its being bizarre, Microsoft issued a statement yesterday saying it would be interested in purchasing part of Yahoo, without saying which part it had in mind. While reporters and analysts speculated that Yahoo's search component must be what the company has in mind, an internal memo "leaked" to multiple reporters, including The Wall Street Journal's Kara Swisher, written by Microsoft's president for its platforms division and also dated yesterday, gives employees a heads-up that it is actually planning to announce its own, homegrown, major search initiative this upcoming Wednesday.

Common sense would conclude that, if Microsoft were actually prepared to make such a platform presentation in four days' time, the people to whom the memo was ostensibly addressed ("To: Platforms & Services Division") would already know about it.

"We have many options that support acceleration of our strategy," reads Division President Kevin Johnson's memo to employees yesterday. "As announced earlier today, we are also considering new alternatives for a transaction with Yahoo which do not involve a full acquisition.

"Regardless of the outcome of any new discussions, it is important that we continue to move forward to strengthen our online services business," Johnson continued. "The fact is that we are not where we want to be in this business yet and we've been in this position longer than we'd all like. To that end, we will be accelerating elements of our core strategy, and breaking ground in new areas."

Johnson goes on to cite his team's recent investments in improving Microsoft's "core algorithmic search" technology -- the underlying code that matches query criteria to search results -- and states that some major presentation regarding this subject will be made Wednesday to a gathering of online advertising platform leaders, at the company's campus in Redmond, Washington.

This memo surfaced apparently just minutes after the dissemination of a public statement from Microsoft, which this time was issued through its own resources and not The Wall Street Journal.

"In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo. Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties. There of course can be no assurance that any transaction will result from these discussions," reads Microsoft's statement in its entirety.

Yesterday, soon afterwards, Yahoo issued its own statement saying it's interested in hearing whatever Microsoft plans to offer.

"Yahoo has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo at this time," reads that company's statement. "Yahoo and its Board of Directors continue to consider a number of value maximizing strategic alternatives for Yahoo, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo's Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value."

Microsoft's strategy and timing seem unusually awkward, especially given the fact that investor Carl Icahn is just now putting together a serious effort to enable the company to acquire Yahoo outright, if that's indeed what it wanted to do in the first place. Such a strategy -- settling for only part of Yahoo -- would appear to scuttle such a deal.

Some analysts and experts in the field believe Microsoft's key objective in launching this takeover initiative in the first place was really to eliminate its key obstacle between itself and Google in online search and advertising. Theoretically, Microsoft biting off a part of Yahoo instead, leaving it a smaller company that fends for itself in a pool of smaller competitors, could achieve that same objective, only perhaps not as readily.

But what part would Microsoft want to bite off? The search element -- the focus of so much speculation this morning -- may not be the wisest choice, believes one of Yahoo's competitors in the online advertising field, Burst Media CEO Jarvis Coffin, in a recent interview with BetaNews.

"I don't think they [Microsoft] stood a chance of becoming #1 in search," Coffin told us. "I don't think search represents the bottom of the iceberg; search, to me, is the tip of the iceberg online."

The foundation for Coffin's "iceberg" is an advertising platform, which Microsoft supposedly already acquired with its $8 billion buyout of aQuantive. Yahoo may have the more evolved platform, coupled with its innovative Right Media exchange for the sale of remnant inventory; and that platform will be critical to Yahoo's ability to combat what many see as the new leader or principal challenger in online advertising, AOL's Platform-A. Microsoft would do well to acquire such a part, but there's no logical reason to believe Yahoo would part with its ad platform and network -- the very heart of its reformed business model, and its key revenue center -- on the theory that the rest of its assets could generate enough revenue independently to keep the business afloat.

Indeed, search may be a component that Yahoo could happily part with, assuming it agrees with its competitor at Burst Media that search is only the tip of the iceberg. And with Microsoft almost too obviously without a clear agenda regarding what it really plans to do with search, a sale of search technologies and services by Yahoo to Microsoft could be perceived by Yahoo's own board of directors as the shifting of a big lead weight over to a competitor that, for some reason, is happy to take it off its hands.

"I think that Microsoft has every resource required to quilt together a global media network that is not simply data-driven, if you will, but end user-driven, publisher-driven," Coffin told BetaNews a few weeks ago, "and the fact that they're not buying Yahoo gives them a breather to think through the strategy again about, do we really want to get into the ring, spend all this money and time and energy so we can be second place to Google in the search business? If the answer to that is yes, then they'll try it someplace else, I guess."

Chalk one more Jarvis Coffin prediction as apparently coming true.

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