Why Microsoft wants to acquire Yahoo (I)

The following is an article about why Microsoft wants to acquire Yahoo.

What’s Hot About Yahoo? Information
By Louise Story
International Herald Tribune
March 3, 2008

Microsoft's chief advertising strategist, Michael Galgon, said during an interview that data was indeed a factor behind the bid for Yahoo. Advertisers only need to know a limited number of details about consumers to serve them relevant ads, he said, but Web publishers like Microsoft see no limit to the amount of data that could prove lucrative.
Microsoft and News Corp. have offered many reasons behind their desires to team up with Yahoo -- its brand name, its popularity, content pages, search engine and e-mail service.
But Yahoo has another asset that makes them salivate: a massive trove of data about where people surf on the Web and what they do there.
Every month, about 136 million people visit Yahoo sites, and Yahoo collects at least 110 billion pieces of data about them, from the topics they search to the videos they watch, according to an analysis that comScore conducted for The New York Times. The information is used to deliver relevant advertisements to people based on their interests, and Yahoo collects more of it than any other company, comScore says.
Microsoft's chief advertising strategist, Michael Galgon, said during an interview that data was indeed a factor behind the bid for Yahoo. Advertisers only need to know a limited number of details about consumers to serve them relevant ads, he said, but Web publishers like Microsoft see no limit to the amount of data that could prove lucrative.
The more that Web companies know about each visitor, he said, the more they can attract advertisers and charge higher rates.
"What is targeting in the long term?" Galgon said. "It looks like increasing incidents of moments where advertising equals information. You're getting content about things and messaging about things that are spot on to who you are."
For Microsoft, buying Yahoo would increase the number of times it could collect data on a typical consumer by 674 percent, to 2,747 times a month from 355, comScore found. Given Microsoft's ambitions to compete with Google in online advertising, that increase goes far in justifying its $44 billion bid.
Meanwhile, News Corp. is in talks with Yahoo to merge some of its Web assets, like MySpace, with Yahoo, which would build a different kind of online data monolith. MySpace currently picks up data on a typical Web surfer 1,416 times in a month, but a MySpace-Yahoo combination would see a given person at 3,372 junctures.
Google and AOL, which is a division of Time Warner, have also made overtures to Yahoo. Any of these combinations would certainly make privacy activists shudder.
"So many of the deals are really about data," said David Verklin, the chief executive of Carat Americas, an ad agency in the Aegis Group that figures out the best places to run advertisements. "Everyone feels that if we can get more data, we could put ads in front of people who are interested in them. That's the whole idea here: put dog food ads in front of people who have dogs."
Although online data collection is rife with privacy issues, it is also routine. Companies collect information about a consumer every time he or she visits their Web site, clicks through to a new page, conducts a search on the site, watches a video there or looks at an advertisement. Companies also collect the information that people type voluntarily on registration and order forms or on social network pages.
Companies like Google, Yahoo, Microsoft and AOL, which run advertising networks, can see a lot more.
On top of the information they get from visitors to their sites, they get data from the sites that host the ads they place all around the Internet. Yahoo's total, for example, jumps from 110 billion data points to almost 400 billion, when its ad network is added in.
"The big guys, the technology companies, are gaining much more of an opportunity to collect data about people," said Linda Abraham, an executive vice president at comScore. "But the traditional media players aren't even in the same league. They can't really play in this sandbox."
While the average visitor to Microsoft's family of Web sites generated 355 data collection opportunities in December, the average visitor to a Conde Nast Web site generated only a tenth that number. The numbers for other media companies, as generated by comScore, were 38 for NBC Universal, 45 for The New York Times Company, and 49 for McClatchy Corp., a newspaper company. The comScore figures are averages.
Although the technology companies have a big advantage, some big media companies are trying to play catch up. Walt Disney, for example, is looking into how data from its various units, like the sports broadcaster ESPN and the ABC television network, can be combined. News Corp. is exploring ways to use data from MySpace to decide which ads to show MySpace users when they are on other News Corp. sites. IAC is using data from its LendingTree loan search site to deliver ads on its other sites to people it knows are looking for mortgages.
Peter Horan, chief executive of IAC's media and advertising division, said that media sites had no choice but to dive into their data to satisfy advertisers' demands.
"It's in our best interest to help them," he said. "Everybody that I know in the business is using data right now."
Michael Pilot, president of advertising sales and marketing at NBC Universal, said that the disparity in the data figures did not necessarily cede the race to the technology companies. "I don't envision a media company like ours being at a competitive disadvantage because of an inability to get data on our viewers," he said.
Indeed, Yahoo, Microsoft, Google and AOL -- which have spent an aggregate of more than $10 billion to purchase online advertising companies that bulked up their data capabilities -- are all wooing the media companies with offers to sell ads for them on their sites, arguing that they can do it better.
Web companies gain an additional benefit from such relationships by gaining access to even more consumer data.
The companies with the most data -- Yahoo and Google -- are not yet using all of it, but advertising executives say it is only a matter of time, and that most large media companies will feel the need to team up with them.
"Ultimately, I think a lot of publishers are going to find they don't have enough data, and it's too expensive to manage," said David Kenny, chief executive of Digitas, a digital advertising agency owned by Publicis Groupe. "There's only going to be a handful of big players who can manage the data."
Whether privacy concerns get in the way remains to be seen. So far there has not been substantial outcry, but privacy activists argue that is because consumers do not know what is going on, and the Web giants are not exactly forthcoming. Instead of referring to what they collect as data, executives at the largest Web companies tend to use terms like relevance, targeting, reach, and scale. "They don't overtly come out and talk about data, because I think it's a red flag," said Shar VanBoskirk, an analyst at Forrester Research. "It's the promise of what the data could mean that everyone talks about, without talking about the mechanics of what they have."