Yahoo Pain Good for Google

Yahoo released its third-quarter earnings yesterday, and the pain was even worse than analysts expected. Profits dropped 64 percent from a year ago, down to a mere $54.3 million on $1.79 billion in revenue. As Yahoo announced plans to outsource some operations overseas, cut $400 million in expenses, and lay off 1,500 employees (or 10 percent of its workforce), Chief Financial Officer Blake Jorgensen declared, "We are going into what is very clearly a recession mode."

Considering what the company could be now under Microsoft's ownership, Yahoo's executives were lucky to leave the room alive. Yahoo's stock now hovers around $12 a share, a far cry from the $33 Microsoft offered when it tried to buy the company last spring. Mircosoft CEO Steve Ballmer recently floated the idea of buying Yahoo's search operation again, but nothing has happened in that direction since. As TCW Group media analyst Anthony Valencia told the Los Angeles Times, "While the credit crisis and precipitous stock market declines are not the fault of Yahoo management, the fact of the matter is that over 1,000 employees who may have been retained by Microsoft are now losing their jobs while shareholders are stuck with a stock price that is 60% less than what they could have received."

Forbes' Andy Greenberg notes that, once again, this is good for Google. As the economy contracts and companies cut back on their advertising budget, advertisers will abandon Yahoo's and Microsoft's display ads for targeted search ads, the bread-and-butter of Google's operation. Moreover, the struggling economy will put damper on venture capital spending, reducing the opportunity for startups to build a better Google and challenge the company for supremacy. For the near future, at least, it's Google's world—we just live in it.