Microsoft, Yahoo Search and You – The Reel Deel

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byngoo  b y n g oBig news this week from the world of Google haters and would be slayers of the search engine giant as well as for anyone who uses search engines, search advertising or ever has had a need to find something on the web. Microsoft has signed on Yahoo to its search engine service. But what’s that really mean for you and yours?The deal (replete with its own website), recently penned and awaiting approval from the regulatory brain trust, puts Microsoft’s search technology (let’s call it Byngoo! shall we?) as the power behind all Yahoo site searches. That not only means that Yahoo seems to be bowing out of the search engine business itself (or at least becoming subservient to Microsoft) but it also places Microsoft’s technology and (more importantly?) advertising network all over the Yahoo sites. But is this a good thing for all of us?

Honestly, I am not at all impressed with Microsoft’s search technology. I never have been and while I know competition is good I just don’t believe that they have the chops to beat Google at the game it practically invented…or at least re-invented. However, in the deal Microsoft gains an exclusive license to Yahoo’s search technology so that it can pick and choose anything it likes and add it into Bing. Yahoo on the other hand will use Bing as the sole search algorithm on its site and will display a “Powered by Bing” icon. But doesn’t Byngoo! have a nice ring to it? It’s almost like Bingo! which we generally use to mean “That’s it!” and would make great name for a search engine…then again, so would Eureka! as in “I’ve found it!”, but I digress.

It’s been reported by Business Week that Bing “is a hit, having begun to gain market share.” Of course if you go from ZERO to SOMETHING (about 5.3% according to HitsLink which is more than MSN has had recently, perhaps ever), that’s considered a market share gain. But a hit? I’m not so sure about that, personally I don’t know anyone that’s made the switch to it. Now they’re going to split their forces and tie into Yahoo, a project that may take up to two years they say but we all know could easily slide into five.

Where’s the real advantage for Microsoft? Well, first off they’ve knocked off a competitor in the ad serving and search engine markets and will almost instantly gain market reach and share. Yahoo has been running their “Sponsored Search” program for quite some time which will apparently go by the wayside when they implement Bing and the Microsoft ad network. The deal has been said to not only include the search technology but also the advertising. So will they combine the two into one service? Yes, and no. The deal states that Yahoo will sell ads for both Yahoo and Microsoft but that they will both use Microsoft’s AdCenter which many believe superior to Yahoo’s proprietary ad network. Searchenginewatch believes it could become a good place to spend ad money in addition to Google’s AdWords but certainly not a replacement.

That brings up another important question. Can Yahoo and Microsoft play well together? There are some major egos on both sides of this deal and they could easily start getting in each other’s way and end up putting the whole deal in the crapper. They have been at each others’ throats for so long that the deal shocked me personally. I wonder if this is an ‘enemy of my enemy is my friend’ deal or if they truly believe they can create a far superior product and begin carving off pieces of Google’s search and search ad empire.

What’s it mean Chris?!

Well, that’s a good question and if you ask 10 people you’ll get 10 different answers. Here’s mine.

One less search engine? Not really a bad thing. Two mediocre search engines combining, yes I called them both mediocre, and tech-sharing to increase their reach, improve their results and become one better search engine? That’s a good thing. Two competing ad networks combining into what will effectively be one giant one? Well, it will certainly give the clients there a far wider range of possibilities and cut down on campaign management for those that were using Google AND Yahoo AND Microsoft.

What’s probably going to happen is that Yahoo will open up its search engine algorithm and technology to Microsoft. Microsoft will then poke about in it for some time and say things like “ooohhh! Shiny!” or perhaps “Huh, why didn’t we think of that?!” Then they’ll go ahead and rip out chunks of code and slap them into Bing…thus creating Byngoo! as I’m going to call it.

This is what “The Deal” page has to say:

For Web users and advertisers, this deal will accelerate the pace and breadth of innovation by combining both companies’ complementary strengths and search platforms into a market competitor with the scale to fuel sustained development in search and search advertising. Users will find what they care about faster and with more personal relevance. Microsoft’s competitive search platforms will lead to more value for advertisers, better results for web publishers, and increased innovation and efficiency across the Internet.

Of course, it does get a little catty as well stating that the deal “will combine Yahoo! and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70 percent of all search.” Well if AdWords didn’t work, it wouldn’t have more than 70% of the market, now would it?

It’s all going to be touch-and-go for at least the next six months which is the minimum time I see it taking for the Anti-Trust folks to give a thumbs up/down. Remember, while the deal is signed by both parties it could still be blocked by the government and seen as anti-competitive. Oddly, Microsoft if well acquainted with that word and now they find themselves on the other side right? They have to prove that this will in fact increase competitiveness in the marketplace instead of restrict it which they have been more than guilty of doing in the past. I can see their argument, it will better equipe MS and Y! to take on the big G on a more even playing field. While it will effectively remove a search engine from the marketplace it will make a more competitive one in its place. Plus, there’s no lack of search engines on the market…is there?

In the end it could go either way. I’m taking a wait and see approach for the sole reason that Microsoft is involved and we have seen them totally screw things up (NT, Vista, IE) in the past and shoot themselves in the foot. Yahoo on the other hand has always been a more cautious firm and been a fighter, hanging in there for a long time against all comers…perhaps one will learn from the other or perhaps Yahoo will start taking on the less-popular facets of Microsoft business principles. Either way, I think I’ll personally stick to that other company…you know, the one with the 70% market share. When some of the dust settles and things start moving along I’ll take a look at this new Byngoo! and see how it’s going and then, maybe, I’ll consider testing the waters over there. Until then, just keep on course as we all have been. No need to be an early adopter…especially when there won’t be anything to adopt for at least the next 2.5 to 5 years.

Here are the vital points of the deal:

  • The term of the agreement is 10 years;
  • Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms;
  • Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.
  • Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.
  • Each company will maintain its own separate display advertising business and sales force.
  • Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.
  • Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.
    • Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
    • Yahoo! will continue to syndicate its existing search affiliate partnerships.
  • Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.
  • At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.
  • The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.


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