Microsoft and Yahoo! seal search dealMicrosoft and Yahoo to take on Google

30 July 2009

Google has 87.3% of the web search market in the UK

Microsoft and Yahoo! have signed a deal, which the companies hope will enable them to take on the might of search giant Google.

Under the terms of the 10-year agreement Microsoft’s search engine Bing (some claim 'Bing' is an acronym for Bing Is Not Google) will power the Yahoo! website, while Yahoo! will take on responsibility for the advertising on Microsoft’s online offering.

Can Bing take on Google?

Microsoft chief executive Steve Ballmer said that the agreement will provide Microsoft with the opportunity to compete more effectively.

'Through this agreement with Yahoo! we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single player,' he said.

Google won't be quaking in its boots, yet. 'In the US, Google has around a 65% share of the search market; the new Microsoft/Yahoo! combination will have around 30%. However, this will create a more viable second-string player in all markets, giving marketers a significant, credible alternative/additional outlet for their search spend, or at least a better incentive to run trials outside of Google,' said Rebecca Jennings, principal analyst for Forrester Research.

What’s in it for Yahoo!

In return for control of its search engine Yahoo! gets to keep 88% of the revenue from all search ad sales on its site for the first five years of the deal and can sell ads across Microsoft sites.

Jennings says, financially, it's a good deal for Yahoo!. 'This gives Yahoo! the majority of the revenues it would have got anyway (and hopefully 88% of a bigger pot than it would have generated alone anyway) plus the benefits of reduced costs, so for them it’s a good deal,' she said.

However, other experts aren’t sure that the partnership is a wise one for Yahoo!.

In a statement headed 'The Yahoo!-Microsoft Search Deal: a strategic mistake for Yahoo!' rival research firm IDC says: 'We maintain our position that this deal is strategically unwise for Yahoo!. Search will remain the most important online advertising segment for years to come. If that is so, why outsource search development to someone else without any control over that someone else's work? Why, in one word, put one's fate in somebody else's hands?'

'Because there is no way back from this deal: Once search is outsourced, it will be almost impossible to bring it back in-house. Should Microsoft lose the race against Google in terms of search relevance and ad placement technology, Yahoo!'s ship would sink with Microsoft's.'

Jennings is more positive about Yahoo!s outlook but agrees that the company's position in the search market is over: 'I don’t think it’s the death of Yahoo!, maybe just of the old search-obsessed Yahoo!'

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