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Decoding the Facebook-Yahoo Deal

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Behind the usual public relations waffle, real benefits for both partners.

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MINYANVILLE ORIGINAL "Strategic alliances" in business often come to nothing more than a few dutiful emails floating between office cubicles. This is especially true when no cash changes hands, or when they're created to put an end to a legal dispute that one side didn't want and the other regrets.

Both of the above are true in this case, but the latest deal announced by Facebook (FB) and Yahoo (YHOO) might actually come to much more than that,because both sides need it badly.

First, you need to parse the press release, issued Friday by both companies to announce the settlement of patent claims brought last May by Yahoo against Facebook. In the midst of the usual public relations waffle about working together, Facebook and Yahoo say they've agreed to the following:
  • Facebook will showcase links to "premium media experiences" and "large media event coverage" on Yahoo. ("Premium" is usually a euphemism for "extra charge." The rest of these words evidently mean editorial coverage of special events, like the Olympics.)
  • Over on the Yahoo site, that event coverage will be enhanced with "social integration" features provided by Facebook. This should mean higher visibility than the usual "like" button for Facebook inside Yahoo pages.
  • The two companies will co-market that package to advertisers. For example, Yahoo might create a special news package on the Olympics, and fold in some features that encourage users to comment about the events on Facebook. Both will promote it aggressively, and they'll seek sponsorship from major advertisers for the package, splitting any revenue they get.
This is a pretty sensible division of labor. Yahoo has an editorial staff that knows how to create "timely content." Facebook has no content whatsoever that its users don't create or link to, with the exception of a company blog that hasn't been updated since January 18. What it has got is active users (700 million of them and counting) and that gives Yahoo much-needed exposure, and a tie with a hotter company than it has been for some years.

So for Yahoo, this is more than a graceful exit from a legal dispute that was widely derided as a "patent trolling" operation. It's a chance for a big promotional push, additional advertising revenue, and renewed credibility with advertisers.

What does Facebook get? Executives there may be considering that special events like the Olympics are a time-honored way to drive usage and get ad sponsorships, whether you're CNN or Twitter. So far, Facebook has not really been seen as a place to go when something exciting is happening in the world. Now, through its no-cash deal with Yahoo, it has found a risk-free way to explore the possibilities.

One more thing: Yahoo also gets to be the first external site to experiment with those controversial Facebook ads that paste users' faces and names on advertisements for commercial links they "like."
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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