As a former eBay employee, I can say with certainty that ego flows deep and wide in the executive ranks at eBay. My sources tell me that eBay has had near-miss M&A conversations with AOL, Yahoo, and Google in years past. I was not involved in any of those discussions personally, but the walls talk, and eBay senior execs were often well-apprised of such discussions. Such intel is hard to contain amongst type-A execs for whom such inside knowledge constitutes validation of their organizational importance.
Valuation disagreements barred an AOL merger, and those talks instead yielded a multi-year "strategic" marketing partnership which turned out to be a burden on both parties. AOL sold ads on eBay for cheap, when they sold them at all. And eBay chased AOL around for years trying to extract the promised value from the vaunted AOL network with remnant banner ads and do-nothing placements while AOL focused on more lucrative CPM rates as they chased quarterly earnings targets.
A potential Yahoo merger was killed by ego. Meg would not report to former CEO Tim Koogle.
A potential Google merger was killed by ego and hubris. Meg and Rajiv did not want to be seen as having paid too high a premium for the #3 or #4 search site in 2001. Google, understanding their position of strength, would accept nothing unless than $5 billion.
So, after all of this, here we are in 2007, with Yahoo occupying what looks like a permanent post in Google's rear view mirror, and eBay feeling the pubescent pains of decelerating growth rates in the US and Europe, slow-to-mature emerging markets, and outright failure in Japan and China. Both companies inched towards a merger with a deal that effectively replaced the AOL deal (albeit with some improvements): Yahoo selling ad space on eBay, eBay paying something closer to market value for a mix of premium and second-rate placements on Yahoo properties. Yahoo shuts down Yahoo Auctions, eBay commits massive long-term paid search advertising, and the proverbial drawing of lines in the sandbox is complete.
So, what's holding up the consummation of the courtship? Ego.
Rumor has it that Semel's ego is even bigger than Meg's, and that Semel 's hand-picked lieutenants are full of "i'm smarter than you" syndrome, making them very hard to stomach in even casual conversation, let alone M&A discussions.
There's also the issue of vulnerability: neither side wants to suggest that they want the deal badly, even if it makes sense. These two companies go together so seamlessly, it's a layup, strategically speaking. But Meg will not go out as the subjugate, and will require the upper hand with regard to valuation, reporting structures, board seats, etc.
Yahoo Shopping + Shopping.com + del.icio.us = home run
eBay marketplace + Yahoo network = boost to global customer acquisition
Flickr + eBay sellers = home run
Skype + Yahoo Groups & Answers = home run
Paypal + almost anything Yahoo (IM, Flickr, Shopping, Groups, Answers, etc.) = home run
Rivals + StubHub & eBay Sports = home run (lame pun absolutely intended)
And with Terry Semel (and his ego) out of the picture, Yahoo can spin a merger as innovative, outside-the-box thinking instead of tail-between-the-legs acknowledgment that Google is kicking their ass.
This is one of those deals where the Gods of Smart Business need to strike down with great vengeance and furious anger those execs who refuse to discard their egos and do the right deal for customers and shareholders.
