Microsoft and Yahoo! Announce Deal

Earlier this morning, Microsoft and Yahoo! announced that they’ve struck a deal, essentially merging their search properties. They tout that the agreement will provide the scale necessary to fuel innovation and development to compete with “one company that dominates more than 70 percent of all search” (read: Google).

Here are the specific details of the deal. For more information, read the entire “Microsoft, Yahoo! Change Search Landscape” press release.

• 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.
  

It’s certainly too early to know exactly how this will shake out, and we’re still more than 2 years out from full implementation (they’re hoping for regulatory review and approval in early 2010, with completion of the integration 24 months after that). However, here are some of the initial thoughts from DBE team members:

Deepa Maran: The integration will begin in the United States with organic search and then with paid search ads. The integration will then expand to other countries and regions.

The search brand at Yahoo! will remain "Yahoo! Search" but it will have a label at the bottom of the page that says "Powered by Bing." (Yahoo will use Bing's search algorithm). Nothing is changing now, not until they get regulatory approval, so we have time.

Re: SEA (search engine advertising, aka PPC), we won't have to worry about managing both adCenter campaigns and Yahoo campaigns, just adCenter.

Marc Engelsman: For searchers, the algorithm merger is most likely a good thing as it will provide a strong competitive alternative to Google. There will be continued investments in improvements to make search results more and more relevant and meaningful to users by both Google and Yahoo!/Bing. I also think that this may increase the likelihood of users conducting the same search on both Google and Yahoo!/Bing, particularly if Google’s initial results are not satisfactory.

From an SEO perspective, we have always liked MSN’s algorithm as it puts more weight on onsite tags/content (vs. Google’s inbound links emphasis) and ergo is faster to index our clients’ optimized pages. And, for paid search, using the same ad interface should provide economies in terms of ad set-up and bid management. It will be interesting to see if this also may lead to slowing/reversing the seemingly endless rise in cost-per-clicks.

Rob Trautner: In response to Marc’s CPC comment above, I think it will have the opposite effect on CPC. The consolidation means you’ve reduced the inventory of ad space, making the remaining territory more valuable. Also, if this works and Binghoo increases their market share, there will be more competition for that limited space.

From the PPC management perspective, I have issues with both Yahoo’s Panama and Microsoft’s AdCenter. They both have built-in bottlenecks that create headaches. The advantage of AdCenter winning out is that they already have a Desktop editor, and that makes most aspects of set-up substantially easier. The online management interface though, is slow, clunky and unintuitive. That doesn’t even begin to address how fluky AdCenter is when it comes to actually displaying ads, especially since the switch to Bing. This is one area that they will really need to fix to ensure that this is successful. If Yahoo ad impressions drop to Bing levels, then running SEA on their network will be practically useless.

At first, I thought I would be working on “next steps” today, but the next step is “Wait. Then wait some more.” Implementation time is going to be an obstacle. First they have to get through regulatory hearings, which predictions indicate will be in 2010, then it will take up to 24 months to execute. That’s almost 3 years! Just think about what was happening on the internet 3 years ago then imagine how different the playing field will be 3 years from today. Google Wave will be running full speed (in its 2nd full year of beta.) We’ll have 6th generation iPhones, 4th generation “iPhone killers,” and mobile internet will be standard on pretty much every phone. That doesn’t even factor in the devices we haven’t seen yet.

Microsoft and Yahoo have their work cut out for them. Separately, they’ve both been trounced by Google. Combined, they’re still trounced by Google. If the best they can do is pool their resources to try to catch up, this will fail. They need to leapfrog Google technologically to truly compete, and at the pace that Google is developing and innovating, that’s going to be very difficult.

Ann Pyle: Even with their joined forces, Microsoft and Yahoo!’s market share is still less than half of Google’s 65%. It will be interesting to see if they can overcome that gap through their combined resources, expertise and technologies, but time is the enemy (see Rob’s comment above). The pressure is on, because if they don’t get it right, they run the risk of sending their audience to the only other option out there – Google.

From a management perspective, this deal will make monitoring and reporting easier, with only 2 major search engines to keep track of. Though this does mean re-benchmarking in terms of visibility numbers.

Rob says “Binghoo”, I say “Bingya”. Which will become the overused, annoying amalgam media latches onto first?