Breaking Down the Microsoft and Yahoo! Deal
[Customer Notice: The Yahoo!/Microsoft relationship will have no impact on Omniture customers or partners. Your tracking and ad management will continue to work properly, and we will alert you if there are any changes.]
In case you hadn’t heard, Yahoo! and Microsoft are combining their search businesses, at least for the next 10 years. Microsoft is acquiring Yahoo!‘s core search technology and Bing will be the core algorithmic and paid search platform, while Yahoo!‘s sales force will continue to sell enterprise paid search programs globally for the combined entity.
The jury’s still out, but this should be great news for the search industry. As long as the combined entity (what should we call it? Yahoo!/Bing? Ying? Bahoo? Bing?) does not lose market share and Bing continues to pick up speed in the market advertisers will, over time, be less dependent on Google. Although Google’s stock price only lost about 1% of its value on the news (basically nothing), more competition needed in the search space. More competition is a good thing for advertisers.
So how can Bing make this a success?
Thanks in large part to their dominant market share, Google’s RPS (Revenue per Search) is much greater than Yahoo! and Bing. This allows Google to outbid those competitors on all of the best search partnerships. This, in turn, increases Google’s market share which generates more revenue for Google and further increases its ability to outbid its competitors for search traffic.
So will Microsoft’s next step be to throw huge sums of money at Google’s distribution partners?
Well, way, way back in the early 2000’s Google’s distribution strategy was to do exactly that. Their main competitor was Overture (now Yahoo!) and Google outbid them time and again for search deals. In 2005, Google did the same thing to Microsoft when they paid AOL $1 billion and picked up a 5% stake for their AOL’s massive volume. (Interestingly, much of that $1 billion funny money was spent by AOL on Google to increase awareness of AOL as a Web destination rather than an ISP.)
The Yahoo!/Bing search relationship’s biggest fear is that its combined market share will actually shrink to a level lower than the combined, separate market share of Yahoo! and Bing. Aside from its $80–100 million ad blitz, the biggest way to increase its market share is to start outbidding Google, regardless of the lower RPS. Over time, the Yahoo!/Bing RPS will increase — just as it did for Google — and, if it continues to improve its market share, it will eventually catch up to Google’s. As I’ve said before, Yahoo/Bing could start by trying to win the search business from AOL, Google’s biggest partner.
- What will happen with Paid Inclusion (Yahoo! SSP)? This is a roughly $100 million business. Will it be extended to Bing? Will it be shut down entirely? I’d like to see it increase as it can be a very effective way to target consumers.
- How will Yahoo!‘s sales force feel about selling this combined search inventory? Will we see a staffing exodus or will applications at Yahoo! skyrocket now that reps will be able to sell much larger and therefore more interesting (and lucrative) enterprise search packages?
- What exactly does this mean for Microsoft’s display inventory? It doesn’t seem likely that there will be a subsequent deal linking the two companies’ remnant inventory in a single ad exchange, but it’s possible.
- Will Yahoo!‘s global sales force sell more display/search campaigns? I’d expect to see products like Smart Ads pick up steam as advertisers may be able to pick up increased reach and effectiveness by purchasing a larger portion of their search along with their Yahoo! display. Yahoo!, remember, is still one of the largest publishers on the planet, and are now — in a way — one of the largest search engines.
All in all, this is exciting news for the search world. We’ll keep Omniture customers posted on any changes we see coming, and any advertising opportunities to take advantage of.