Will the Yahoo/Bing deal change the search landscape

by Peter Young on July 29, 2009 · 2 comments

It would appear that the long mooted Microsoft/Yahoo search deal has now been concluded according to a number of high profile publications such as TechCrunch and Search Cowboys. The official  press release goes as follows:

Microsoft, Yahoo! Change Search Landscape
Global Deal Creates Better Choice for Consumers and Advertisers

SUNNYVALE, CA and REDMOND, WA — 29 July, 2009 — Yahoo! and Microsoft announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.

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.
Under this agreement, Yahoo! will focus on its core business of providing consumers with great experiences with the world’s favorite online destinations and Web products.

“This agreement comes with boatloads of value for Yahoo!, our users, and the industry. And I believe it establishes the foundation for a new era of Internet innovation and development,” said Yahoo! CEO Carol Bartz. “Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides. Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers. Finally, this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities, and mobile experiences.”

Providing a viable alternative to advertisers, this 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. With the addition of Yahoo!’s search volume, Microsoft will achieve the size and scale required to unleash competition and innovation in the market, for consumers as well as advertisers.
Microsoft CEO Steve Ballmer said the agreement will provide Microsoft’s search engine, Bing, the scale necessary to more effectively compete, attracting more users and advertisers, which in turn will lead to more relevant ads and search results.

“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 company,” said Ballmer. “Success in search requires both innovation and scale. With our new Bing search platform, we’ve created breakthrough innovation and features. This agreement with Yahoo! will provide the scale we need to deliver even more rapid advances in relevancy and usefulness. Microsoft and Yahoo! know there’s so much more that search could be. This agreement gives us the scale and resources to create the future of search.

“This deal fits the long-term strategic direction of Yahoo! to remain the world’s leading online media company and Carol Bartz has the full and unanimous support of the Yahoo! Board behind this deal,” said Roy Bostock, chairman, Yahoo! Inc. “This is a significant opportunity for us. Microsoft is an industry innovator in search, and it is a great opportunity for us to focus our investments in other areas critical to our future.”

The key terms of the agreement are as follows:

- 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.

The agreement does not cover each company’s web properties and products, email, instant messaging, display advertising, or any other aspect of the companies’ businesses. In those areas, the companies will continue to compete vigorously.

The transaction will be subject to regulatory review. The agreement entered into today anticipates that the parties will enter into more detailed definitive agreements prior to closing. Microsoft and Yahoo! expect the agreement to be closely reviewed by the industry and government regulators, and welcome questions. The companies are hopeful that closing can occur in early 2010.

The companies have established a website at http://www.choicevalueinnovation.com to provide consumers, advertisers and publishers with additional information about the benefits of the agreement.

According to the live Conference Call which is taking place as I speak, both companies can focus on core areas something which could mean each taking a greater interest in a specific niche. Certainly for a long time Yahoo’s focus appears to have been primarily display focussed and such a move could mean Microsoft taking a much greater role in the development of the search product, although it would appear that Yahoo technology would be behind much of the search functionality of both search engines (Quote @searchcowboys twitter stream)

Yahoo technology will be integrated with Bing and search both networks

The inevitable question will thus be raised. Is the new Microhoo a viable competitor to Google. When considering this question one should consider this outside of merely the US and even more so Western Europe. Many South-East Asian countries have a far high number of Yahoo (vs Google) userbase and as such, this deal can only serve to establish both brands even more in those markets.

What it will however allow is greater potential traction within the valuable dare I say first world countries where advertising revenues via search are far more valuable, and allow them a more competitive alternative to that of the seperate Yahoo and MSN brands.

As much as I would like to think this is going to compete, any immediate impact is unlikely as be totally completed before 2010. Further this any increased traction within the search markets is going to be hugely down to Microhoo’s ability to innovate – something which I personally think has always set Google apart from many of its competitors.

Its certainly an interesting development – however I can’t help thinking it may be a little bit too late…

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{ 2 comments… read them below or add one }

Nick Stamoulis July 31, 2009 at 2:07 pm

I don’t know if it will change the search landscape but it will def. give Bing some strength by acquiring that part of Yahoo.

Peter Young August 3, 2009 at 1:47 pm

Agree completely Nick, as I mentioned in the post I can’t help feeling its a case of too little too late as far as competing at the very top but it certainly should give them some traction in the market and take them out of the realms of the ‘smaller players’.

I would also suggest it will help consolidate less Google-heavy markets where Yahoo still holds some traction (such as Japan)

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