You are here

What Yahoo job cuts say about Google-Yahoo deal

Yahoo's reported job cuts of over 1,000 of their 14,300 employees is a helpful window into the real prospects for the pending Google-Yahoo ad partnership that is under serious investigation by the DOJ.  

First, the job cuts signal Yahoo is pessimistic about getting the proposed ad agreement with Google approved by the DOJ.

  • If Yahoo was confident the deal was near approval, Yahoo would be more patient in awaiting the beginning of an ~$800m annual revenue infusion to begin in 4Q08, not obviously hunkering down to go it alone.
    • To put this ~$800m in perspective, 1,000 job cuts would save Yahoo about $100m annually, or the equivalent of a couple of months of the Google ad deal.
  • In other words, if the ad deal was likely to get approved, Yahoo would be doing what it told the DOJ it would do -- investing not disinvesting.

Second, the job cuts underscore how dependent Yahoo would be on the Google ad partnership. 

  • Google's proposed ad bailout of Yahoo was masking what Yahoo knew all along, that Yahoo is clearly losing the competition with Google.
    • So "if you can't beat em, join em." 
    • Being on the good side of the "mono-pole" is better than being on the bad side of the "mono-pole." 

Finally, the job cuts are evidence of "The Google Effect" more than "The Walmart Effect."

  • In Google's earnings call, Google claimed it's 31% revenue growth was in part attributable to "The Walmart Effect" meaning that in the economic downturn, people use search relatively more to comparision shop and save money.
  • However, given that Yahoo is signaling its revenue growth is not robust or sufficient to maintain current staffing, it is clear Yahoo is not enjoying "The Walmart Effect" but is suffering from "The Google Effect" i.e. the vacuum effect of Google's market power sucking most all of the air, and incremental revenues and profits out of the Internet advertising marketplace.

Bottom line: Real world evidence continues to mount showing how dominant Google is; how dependent Yahoo would be on Google under the Google-Yahoo partnership; and how anticompetitive the Google-Yahoo partnership would be.