Yahoo deserved to die

It's not nice to speak ill of the dead, even if they're very much alive and only dead in the business sense of the word. But it's super easy these days to look at Yahoo's co-founder and ex-CEO Jerry Yang and laugh out loud at how he squandered tens of billions of dollars --and his company's very future as an Internet powerhouse-- because he thought he knew better.

The short strokes of this week's Microsoft-Yahoo Internet search partnership must make Mr. Yang sick to his stomach: What Microsoft was willing to spend upwards of $45 billion for barely 18 months ago it has now won for…nothing. Sure, Microsoft didn't swallow the company whole. It's just a partnership, after all. But that matters little in a search market where the two players were doomed to an eternity of irrelevance if they didn't get together at some point. Living together, marriage, whatever we call it, Microsoft figured out a cheap way to gain access to a much larger search audience, and Yahoo had no choice but to sign the papers and move in.

Hail to yesterday's Goliath

That's what happens when you're an also-ran. And let's not mince words, Yahoo was and is an also-ran. While I admit 20% of the U.S. search market isn't shabby, the company is a mere shadow of the brash organization that in 1995 took a stab at categorizing the then-new-to-regular-folks Internet with its index-based approach to navigation. It may be hard to remember what life was like B.G. (Before Google) but Yahoo WAS search back then. And while a relatively static, category-based, manually updated index was doomed to fail the Internet changes too fast for something so inflexible. Yahoo, not Google, has the distinction of being the first verb of the commercial Internet era: Anyone remember "Do you Yahoo?"

Didn't think so.

So when Microsoft first came calling, first chatting amiably about hooking up in 2005 and then, a year ago February tabling the gigabuck offer that would trigger Mr. Yang's ultimate departure, Yahoo's first response should have been akin to the 30-something never-been-dated woman who still lives at home with her parents: Yes. When the market has slowly squeezed the life out of you and rendered you a distant second fiddle with no hope of imminent recovery, the last thing you should do when so many zeroes after the dollar sign are flashed in your face is respond with defiance.

Yahoo had no options in 2005. It had even fewer in 2008, and it had none earlier this week when current CEO Carol Bartz finally did the deed. That Yahoo had no choice is obvious. That it took so long for it to personally and corporately reach that conclusion cost countless shareholders vast amounts of money, and thousands of employees their jobs. Any company that so ignores doing the right thing in favor of a CEO's need to project hubris deserves to die, so it was good to see Yang's successor pull some salvation out of an otherwise unmitigated disaster.

Abandoning a dead brand image

Kudos to Ms. Bartz for doing the right thing for Yahoo's remaining shareholders and remaining employees and, frankly, for anyone who still uses the company's mostly second-rate online services. Like AOL before it, Yahoo had long since slipped from the public consciousness as an innovative leader. Allow me to use e-mail loyalty as an analogy: If people with gmail.com e-mail addresses are somewhat more tech savvy power users of Google's leading edge Web services and hotmail.com users are mostly kids and mobile-addicted teenagers, Yahoo users were --and presumably still are-- the older folks who couldn't be bothered to switch to something better or hipper. This kind of brand awareness is not how future business success is created, and Ms. Bartz finally admitted it as such in signing the partnership deal.

Thanks to this long-overdue change of direction at Yahoo, the search -- and more importantly, search-based advertising-- market looks markedly different than it did at this time last week. Sure, no one without three shots of Tequila in him could claim that adding Microsoft's 8% share of the U.S. search market to Yahoo's 20% share will cause Google, with 65%, to run for the hills. When you own almost two-thirds of any market alongside near-bulletproof brand ubiquity and end-user entrenchment, it'll take more than a zero-dollar partnership by your two closest and much weaker competitors to knock you off your throne.

Forget the percentages for a sec

But this is a case where psychology matters more than numbers. Where the market previously had only one viable alternative for most online advertisers - if they didn't go with Google, they often didn't advertise at all-- it now has two. As the combined entity approaches 30% market share, it's suddenly large enough to attract the attention of advertisers interested in exploring whether there are other cost effective ways to reach consumers through search. Up until now, there weren't. But something shifted below the landscape when Yahoo said yes, and we now finally have a horse race.

And a race of any kind is good for everyone. It encourages real competition by putting the heat on market leaders to maintain high levels of innovation and, more critically, keep things fair on a pricing and customer service front. I'd never accuse Google of being anticompetitive (that's the European Union's job, apparently) or customer service challenged. But it's easy to conclude that the incentive to play more nicely with everyone else in the playground just increased by an order of magnitude.

Which brings me to Microsoft. The legacy operating system and productivity app vendor that so many wrote off as unable to transition into the Internet economy managed to prove them wrong with a search product (Bing) that continues to impress. The Yahoo deal now exposes Bing to an audience 2.5 times its original size and opens up another lucrative revenue stream for Microsoft, which kinda matters while the rest of us debate the future of those legacy categories it's dominated for so long.

Google's already questioned the deal (big surprise) and antitrust regulators will doubtless get their shot. But for the first time in years, search is fun again. Game on, and thanks, Microsoft, for being so persistent despite Yahoo's ongoing stupidity.

Carmi Levy is a Canadian-based independent technology analyst and journalist still trying to live down his past life leading help desks and managing projects for large financial services organizations. He comments extensively in a wide range of media, and works closely with clients to help them leverage technology and social media tools and processes to drive their business.