Microsoft – Yahoo search deal: 2+2 makes 5, or 3?

Microsoft’s search deal with Yahoo makes more sense than the attempted full acquisition last year. The 10-year deal provides for Microsoft’s Bing to become the back-end search engine for Yahoo, while Yahoo becomes the exclusive sales force for premium search advertisers on both Bing and Yahoo.

Listening to today’s conference call, the rationale for the deal seems to be like this:

Maintaining a search engine is expensive. Yahoo has no appetite for it. So Yahoo saves some cash (in fact, makes some cash) while no longer having that cost burden.

On Microsoft’s side, it is convinced (probably rightly) that large scale is mandatory in order to compete with Google. As Ballmer put it:

the more searches you serve, the more you learn about what people search for and click on

When I was researching Bing, I was told that some of Bing’s features only work if there is sufficiently high usage. You cannot identify patterns of usage without a certain volume of data, which is easy to get for the most common searches, but not so much for those that are more specialist. The long tail applies – there are lots of niche searches.

The value of the data goes beyond search. Search and browsing patterns must enable some remarkable insights into human behaviour, which can inform product development.

A more humdrum fact is that advertisers like large audiences, and the combined search platform may appeal to some advertisers who would otherwise pass it by.

Microsoft is therefore relying on the combined value of the two companies’ search businesses being more than the sum of their individual values.

There is a risk though, which is that some users who like Yahoo’s current search engine may not like Bing so much. If they perceive Yahoo search as merely Microsoft search rebranded, they might jump ship, most likely to Google.

Still, you have to believe in your product. In theory, both companies could benefit from stronger search results and features.

It is important not to forget the context. Google is utterly dominant in search; this is two smaller players struggling to remain relevant in that market. I hope Yah-Bing succeeds because competition is good but the chances are that Google will sail on unperturbed.

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2 comments to Microsoft – Yahoo search deal: 2+2 makes 5, or 3?

  • How many people actually would know to “jump ship” if their search engine changes though?

    Most people use Google because its pretty much a different name for Search as far as people are concerned. I even find myself using Google still, despite the fact Bing often gets better search results, its habit now.

    There are also still plenty of people who think the IE icon means Internet and who only use their current search because they installed something (eg messenger) that made it their default, as most people just click “yes” to everything without thinking of unticking that “make it my default homepage/provider” box.

    So, with all that said, is it really any risk at all Yahoo changing their search provider? How many many actually choose to use Yahoo rather than just use it because it happens to be their default?

    When even myself can fall for it with Google STILL being my default despite its tendency to periodically go through rough patches of poor search results, whenever they fiddle with the backend or someone figured out how to spoof their result. You start to realise the power some of these companies have over you and you never even knew it.

  • tim

    @Alex

    Jason Calcanis argues that “thought leaders” see the “powered by” logo and go direct to the source – or in this case, possibly to Google.

    http://calacanis.com/2009/07/29/yahoo-committed-seppuku-today/

    I think there is something in it.

    Tim