[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.

Lin­ger­ing Questions

  • 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.

3 comments
gooddell
gooddell

nice info!!! danger for google. . .

TSlice
TSlice

Hopefully this will mean viable competition to Google.

Jordan LeBaron
Jordan LeBaron

Great summary. I'm interested to see how aggressive Google will be in fighting this. I see some of the same Google-Yahoo deal arguments coming up, but I don't think they'll hold much weight. I see the deal going through and I'm hopeful this will create a more competitive landscape for search, benefiting both users and marketers.