Thursday, 30 July 2009

Microsoft takes over Yahoo! search

As widely reported by many press sources (including the BBC), Microsoft and Yahoo! have finally struck a deal to combine forces against Google. This much anticipated and expected move has been dragging on for over a year and the final agreement just involves the search side of Yahoo!, rather than a full takeover of the business, but it still results in a significant change in the search market.

The 10-year deal will mean that Microsoft's new Bing search engine will now power the results on Yahoo!, although Yahoo! will retain control of how the search results are displayed. Microsoft will gain access to Yahoo!'s search technology and the PPC advertising platform will move to Microsoft's AdCenter system, but Yahoo! will retain responsibility for selling the search advertising across both networks. Display advertising will remain under the control of each company.

Yahoo! will receive 88% of search ad revenues generated by Yahoo! sites and, together, the 2 companies hope that by combining their technologies they can make a greater dent into the search dominance of Google.

So what does all this mean? Probably very little in the short term as the deal needs to be approved by the authorities and also there will be a major logistical challenge to transfer Yahoo!'s PPC advertiser accounts across to the Microsoft service. However, in the long term this should benefit advertisers who have found the Yahoo! PPC service slow and hard to use, whilst Microsoft's service has been praised, yet limited by market coverage.

In the long term the combination of these 2 search services will mean a further focusing of search through a few routes. The impact on the search market will be mostly felt in the US where the combined strength of these companies will impact nearly 30% of the market, yet in many other countries, Google's complete dominance of search activity will not be greatly affected.

The further reduction in search competition is a shame, but it should be a benefit for PPC advertisers to use the better AdCenter system for non-Google search services. It's also a tragedy for Yahoo!, one of the pioneers of web search and directory services, that it has now lost its once powerful position in this market and will need to rely on its other consumer portal services. Over the years Yahoo! acquired some of the original leading players in web search, such as Inktomi and AltaVista, but some of this technology - if it was developed over recent years - may now help to evolve the quality of the Bing search engine.

For Microsoft, this move is what it has been waiting for and gives it the best opportunity to take on Google for greater market share of search. Whether they can use the share that they will get from Yahoo! in the USA to their advantage and to innovate and grow their user base remains to be seen.

Of the many news articles and comments that have followed this announcement, Danny Sullivan has written A Search Eulogy for Yahoo! and Search Engine Watch has highlighted the advantages for search advertisers.

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