Microsoft and Yahoo has ended as an important albeit fairly mid-level search deal that will help both companies in the long run and should put Google on notice. It is not, however, the end of an era.
By now, everyone knows the core tenants of this 10-year deal: Microsoft will run search ads on Bing and Yahoo, though Yahoo can still sell the ads (in fact, Yahoo becomes the premium partner sales lead for all search). No money is exchanging hands, just ad revenue. And the Bing search engine becomes the engine that drives Yahoo search.
It’s this last part of the deal that’s the most shocking and earth-shattering. Yahoo, a company that helped establish search as the most important thing we do online (it was, after all, the first to try and turn its brand name into a verb for search), is giving up its core business. At least, this is how some are positioning it. Of course, that’s not really the way things are.
It was nearly a decade ago that Yahoo stuffed the Google search engine into its site. That’s right; Yahoo search used the Google search engine. The move actually made a lot of sense at the time. Yahoo’s form of search was the least effective of anything online because it was built on an idea that wasn’t scalable. The whole thing was essentially a browse tree that you had to dig into to find your results. (I remember that I could never find “PC Magazine.”) Google gave them the search format that you see at www.yahoo.com today, though it no longer powers the search.
When you know this bit of history, and you look at Yahoo’s homepage and the wealth of services it offers, you begin to understand that Yahoo hasn’t been in the search business for years. What engine powers the results on its site is superfluous.
For Microsoft, this deal is golden and being struck at the exact right moment. The reinvention of MSN Search, Live Search, or whatever search is called into the unified and surprisingly good Bing has added a fresh spark to Microsoft’s online fortunes. Partnering with Yahoo, in this way, gives Bing exactly what it needs—lots more eyeballs. You see, Yahoo may not be a search magnet, but the homepage is a start page for countless users—it is one of the most visited paged on the Web. According to the Web traffic measurement site Alexa, roughly 25 percent of all Internet users visit Yahoo. If Yahoo homepage fans start to use Yahoo’s search and find the effective Bing, that will grow Bing’s position and add to user satisfaction (I think they call that a “win-win”). It’s important to note that Yahoo’s current search isn’t bad. In fact, our analyst Michael Muchmore rates it as a solid number three behind Bing and Google. If you look at Yahoo’s homepage, however, you realize that search is just one small part of what Yahoo offers. In recent years, the company has done a better job of making search more visible on the page. There was a time when it was completely overwhelmed by Yahoo’s efforts to become an information portal.
While Microsoft wanted and needed this deal right now, I don’t think it could have been done without the hard-charging CEO Carol Bartz at the Yahoo helm. She is determined to change things and turn Yahoo around. With another secondary asset outsourced, the company can focus on its recently reimagined homepage and suite of services that include mail, Flickr, mapping, business, instant messaging, mobile, and more.
Obviously, one wonders if this deal is simply phase one for Microsoft’s total consumption of Yahoo. That’s possible, but, as I’ve noted before, there’s so much overlap in services and technology direction that Microsoft would likely have to kill the Yahoo brand. This plan is better. Microsoft gets to leverage an existing audience to grow its own fledgling search brand and probably spend a lot of time peeking behind the Yahoo curtain—despite promises to “continue to compete vigorously”—and think about what other Yahoo services Microsoft can drive.
I do wonder how former Yahoo partner Google views this deal. I know that Bing is far behind Google in the search race, but it is a lot easier to switch search engines than it is to swap out, say, operating systems. This new leverage must, at the very least, frustrate Google head Eric Schmidt, as well as co-founders Sergey Brin and Larry Page. There’s no one of importance in the search space left for Google to partner with, so it’ll probably have to release some new online app or service in the coming days and weeks to try and steal Microsoft’s thunder. That may not be so easy: I expect the rumblings of this deal to be felt for weeks, months, and even years.
