Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, July 29, 2009

Microsoft - Yahoo Search Deal

Posted by D. Daniel Sokol

By now everyone has heard about the Microsoft-Yahoo 10 year search partnership.  This looks like a very good strategic move for both companies, which face the Google juggernaut.

One web site worth visiting that provides lots of good information is here.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/07/microsoft-yahoo-search-deal.html

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Comments

I can’t believe this deal was in the making for ten years.

Posted by: Chrystal K. | Jul 29, 2009 3:09:31 PM

The "one web site worth visiting" is Microsoft's official web site for the deal, so the "good information" might be a little one sided.

Posted by: Norman Hawker | Jul 29, 2009 5:23:56 PM

This will be a terrible deal for Yahoo!. And it certainly won't benefit consumers or business advertisers who are hoping to reduce their traffic acquisition costs.

Yahoo! is sacrificing its search technology, essentially its core business, for a reduced amount of advertising revenue from its own inventory -- hoping to offset that reduced revenue by moving development costs over to Microsoft.

Microsoft will control Yahoo!'s search results for ten years and at the end be free to walk away without Yahoo! having the ability to replace its search. This deal effectively ends Yahoo!'s 14-year dominance in Web search.

Consumers will lose one of three major diverse algorithms -- each of which presents unique search results. Studies have shown that people either change their queries or their search engines when they experience search fatigue (they get tired of looking for something). Since Yahoo!'s search results will be the same as Bing's, consumers will have one less alternative to turn to.

Microsoft wants to draw more advertisers into the combined inventory for both networks. That will only drive up the cost of traffic acquisition as more advertisers bid on the same queries. Diversifying their advertising across multiple networks saves advertisers time and money.

And Web developers themselves stand to lose all the tools Yahoo! has provided over the years with virtually no word on whether Microsoft will take them over or offer competitive alternatives. Instead, industry insiders speculate all those resources will go away.

Web marketers will have one less fallback play for themselves and their clients. Approximately 145 million people use Google each month. Approximately 100 million people use Microsoft and 60 million people use Yahoo! search each month.

Together, Microsoft and Yahoo! bring more active visitors to the competitive arena, but marketers need to be able to drill down to the right demographics. Now they will have one less demographic pool to work with.

What Microsoft has needed to do all along is learn how to leverage its own properties in its search -- which is what Google does. That is why Google gets so many more page views. Google allows people to run informational queries, allows them to use Google search as a navigational system for many Web sites, and in general does everything it can to keep people on its site before releasing them to other Web sites.

Steve Ballmer just doesn't get search. It's great that he has made a commitment to building a quality search engine, but he can't stop drooling over potential advertising revenues. There is far more to Web search than advertising.

History shows us that when a major search brand absorbs another major search brand, the absorbed brand vanishes and the absorbing brand LOSES MARKET SHARE.

People who are happy with Yahoo! search today are not going to all just jump on board the Bing bandwagon. We'll be able to watch Bing's advertising market share dwindle (assuming Microsoft does nothing innovative to match Google's consumer-oriented presentation).

So, no, this was a terrible move -- especially for Yahoo!. Carol Bartz's "wall of shame" probably denotes more than anything else her total lack of understanding of exactly why kind of business Yahoo! is in and why it was so important for Yahoo! to not give up on search technology.

If she thinks she just improved Yahoo!'s bottom line, she has a hard, sad lesson facing her -- one she could easily have learned by examining Yahoo!'s annual reports for the past ten years.

Posted by: Michael Martinez | Jul 30, 2009 2:36:44 PM

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