Speculation: A Yahoo!-eBay Merger Makes Sense
The idea of a Yahoo!-eBay merger has been around for a long time. Most recently, the merger rumors were revived by Tim Poulus over at Seeking Alpha last June. Before that it was Jim Cramer on CNBC back in May. It's been about a month since the last round of speculation, so maybe it's time to revive it. I don't have any inside information, but of all the Yahoo! merger/acquisition talk (Microsoft, New Corp./MySpace swap, etc.), I think eBay makes the most sense.
This would not be an acquisition, but neither would it really be a merger of equals. eBay has the bigger market cap (~$44B to ~$31B) -- the gap between the two has grown over the past month -- and the more recognizable brand (2007 Interbrand rankings PDF). The fact that eBay would control so much more of the new company might be unattractive for Yahoo! shareholders, but the merger would still be beneficial to both companies, in my view.
eBay and Yahoo! have little overlap in their core businesses, but I think they compliment each other well. eBay is primarly an ecommerce business, while Yahoo! is an advertising business; a combined company would have a very diversified revenue stream. The two companies already have a strong working relationship, which Yahoo! President Susan Decker praised in her Q2 earnings remarks a couple of weeks ago:
"In our two most significant publisher partnerships, we saw improved results and expanded commitments in Q2. With eBay we're seeing an encouraging increase in demand and pricing for advertising both in search and display and we continue to expand the partnership, having recently added Yahoo! Paypal Checkout to the other areas of business collaboration."
What Yahoo! Would Get
PayPal - eBay already beats Yahoo!'s chief rival Google in one area: Internet payment processing and money transfer. Though Google Checkout has gained some traction with larger merchants, PayPal remains the ubiquitous payment system on the Internet for individuals and businesses who can't afford or don't want a full merchant account. Integrating PayPal across Yahoo! properties makes a lot of sense for both companies. It means more PayPal users for eBay, and new services for Yahoo! to offer to advertisers and merchants.
Skype - When eBay bought Skype, the wisdom of the purchase was questioned. A lot of people couldn't figure out how Skype fits into eBay's core services. The PC-to-PC calling software makes a lot more sense in the Yahoo! universe, and a Skype + Yahoo! Messenger integration would be a match made in heaven and would make for a killer messaging platform that would be one of the largest on the web.
StumbleUpon - In May I wrote that social bookmarking sites "offer a wealth of user-vetted data that could be used to augment search results in a positive way." eBay and Yahoo! each control two of the top bookmarking and site ranking web sites. By combining data from StumbleUpon and del.icio.us, Yahoo! might be able to greatly improve its search results with people powered information. Del.icio.us tags and descriptions offer context, while StumbleUpon ratings could be used to improve Yahoo!'s algorithmic rankings. Both sites offer valuable usage data.
An Advertising Partner - Right now Yahoo! places ads on eBay's US site, but Google handles the advertising on eBay's international properties. A merged company would of course let that Google deal expire.
What eBay Would Get
People, People, People - If there's once thing Yahoo! has a surplus of, it's visitors. As the most heavily trafficked collection of web sites in the US, and the third most popular world wide, Yahoo! is bursting with traffic. eBay could benefit greatly being able to use Yahoo! search and services to direct people toward its auctions. Subscribe to beanie baby blogs on MyYahoo!? Bookmark a lot of equestrian sites on del.icio.us? Do a lot of searches for antique bicycle pedals? eBay could use that information to deliver targeted auction ads to users.
A Stronger PayPal - I mentioned PayPal under Yahoo!'s list, but a merger would benefit eBay here as well. TechCrunch is reporting today that Amazon is ready to enter the fray with a new service for web payments. A Yahoo!-eBay merger would help solidify PayPal as a the top payment processing solution on the web in the face of strong competition from Google and Amazon.
Yahoo! Advertising - eBay could offer its sellers access to Yahoo! advertising services. This is a major market that could help Yahoo!'s search ad business with an influx of new customers, and would be a beneficial source for traffic to eBay merchants. A merger could also make it easier for eBay sellers to list their goods on Yahoo!'s Shopping portal.
Conclusion
eBay and Yahoo! are both rivals of Google, but because eBay purchases so much advertising on the Google search engine, they hold a lot of power over the company. In June, when Google tried to hold a party in Boston to promote their PayPal rival the same week that eBay was holding its eBay Live event, eBay pulled its text ads from Google. Google backed off and canceled the party. The prospect of holding that much sway over their bitter search rival could be attractive to Yahoo!
A merged Yahoo!-eBay would create a company that is still half the size of Google on paper, but would have more resources to grow (according to Watchmojo they would double their current cash reserves, for example). As I said before, of all the merger and acquisition talk surrounding Yahoo!, I think a merger with eBay makes the most sense. What do you think? Leave your thoughts in the comments below.
Comments
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This is madness. Bubble2.0 - M&A Crazed Madness.
Mergers are sexy to talk about, but the devil to implement. Mergers of Giants almost never work.
This is like listening to people talk about a Time Warner & AOL merger. What a dream that would be!!! =^)
Who wants to partner with Yahoo anyway. Their ship is sinking, no matter how fast they snap up good companies.
Josh, sounds excellent in theory, well-thought, congrats. But IMO, the integration wouldn't be so smooth and well-done. They can't even integrate small companies they snap up so well.
Moreover, eBay is already extremely healthy, I don't think they would risk it - as for Yahoo, Jerry Yang should have come back to CEO position for a reason, they are ambitious and aware of their potential.
@Tim #1: With Microsoft, I would totally agree. I don't think that merger would have worked out well for either party. But I think eBay is a different story. These are two companies with similar cultures, both located in the same town. They have very little overlap but complimentary businesses, that I don't think would be all that hard to integrate (they are already starting to do it in a sort of 'merger without merging' -- i.e., they have a strong advertising relationship and PayPal buttons are starting to pop up on Yahoo!).
@Emre #2: I don't know that it wold be too difficult to merge the companies (of course it is a colossal task from a legal and business perspective -- but product-wise I think it is less so). eBay and Yahoo! both have very strong brands and operate separate businesses. Rebranding would not be necessary and both sites would want to continue operating as separate but partnered entities. Integrating Yahoo! ads into eBay, and PayPal into Yahoo! are things that the companies are already doing. So tighter (and more) integration as a result of a merger is not a huge leap.
The biggest hurdles would be integrating the user base (but linking IDs isn't that difficult ... and something Yahoo! has recent experience at with Flickr and del.icio.us and can learn from their mistakes with those properties), and integrating Skype and Messenger -- which is a technical issue more than anything.
It's just like 2000 all over again:
http://www.wired.com/techbiz/media/news/2000/03/34967
Actually, in a book about EBay titled "The Perfect Store" the author documents 2 points back in 1999/2000 when an EBay/Yahoo merger was very close to happening. I seem to recall that in one instance the talks broke down when then COO Jeff Mallett insisted that EBay CEO Meg Whitman report directly to him rather than to Yahoo CEO Tim Koogle.
A Yahoo/EBay partnership back then would have been interesting...
Brilliant insight. The products and services here and there fit well like a puzzle.
Seriously guys, I don't mean to object, but mergers are always hard. Always. Always...
Emre is right, Yahoo has a very poor track record of integrating companies. They have hundreds of duplicated processes, poor accounting across divisions, and a general mess.
I appreciate the insights in the article, but my opinion is that it would be millions if not hundreds of millions on lost productivity for both companies...
Hey I have a better idea, how about we merge Chrysler with a huge German car company. Now there's synergies!
In all seriousness, lets look at other Yahoo M&A accidents:
Yahoo acquired Broadcast.com in 1999 for $5 billion. Who?
Yahoo acquired GeoCities in 1999 for $3.56 billion. - When was the last time you visited a site with a geocities.com domain? I can't remember either. Shortly after the acquisition, innovation on GeoCities appears to have ground to a halt. GeoCities could have been MySpace, but the entire social networking revolution passed them right by.
Yahoo failed to acquire Facebook - while i think this would have been the kiss of death for Facebook, Yahoo really could have benefited from all the noise they are making if they didn't screw it up.
Now Yahoo and eBay? eBay can't get Consumer Generated Media to save their lives, but Yahoo is a big conglomeration of hundreds of little businesses that have been poorly integrated. Sure, you could have EBay do all their advertising with Yahoo, but it works better with Google - that is why they are there.
I think this would be just a bad move. Have you ever gone through a merger? It is not 10% as pretty as it sounds. Everyone wondering if they are the redundant employee - if they will be fired. Culture clash. Corporate meetings with all the employees in the dark. Horrible.
"A merger could also make it easier for eBay sellers to list their goods on Yahoo!'s Shopping portal."
A merger could make it easier to drop Yahoo! Shopping and replace it by Shopping.com :)
But will it really be that easy for both to integrate?
With Skype, it would be much similar to Y! Photos v/s Flickr...
excellent analysis, and (as i've also suggested on my blog and on others), it's probably the simplest one of the big proposed merger / buyout deals to pull off.
contrary to disbelievers above, i don't think it would be all that hard to do. having worked at eBay (via PayPal) from 2001-2004, and having been formal / informal advisor to 2 companies bought by Yahoo in past year or so, the cultures are relatively similar.
Yahoo is a bit more technically-minded, eBay a bit more MBA/business-minded, but both companies are practical, respect business & tech leadership (altho could use more of both), and are close in both physical proximity and philosophy. both companies are now effectively run by strong & competent women (tho not tech visionaries), and both have large revenue streams that are not competitive and in fact complementary. they already have strong partnerships in place.
anyway, i'm sure there are reasons why it might not happen, but there are many good reasons why it would / could.
still think a better story would be MSFT buying either or both companies, but that's much tougher deal to put together.
- dave mcclure
http://500hats.typepad.com