At the end of last month both the United States Department of justice and the European Commission granted regulatory approval for Microsoft and Yahoo! to move forward with the search and advertising partnership they announced back in July of 2009. The gist of the deal is that Microsoft will run the search side of the combined operation while Yahoo! will act as the sales force for premium search advertising services. Both companies hope the deal will help them capture a larger part of a market that Forrester estimates as worth $15 billion in the U.S. alone.
Of course, with brand name titans involved in such a public facing deal there has been no lack of comment. Shouts and murmurs are coming in from all sides with myriad suggestions as to the effect, but as integration will not be fully in place in the U.S. until later in the year and across the whole network for a couple more, the verdict is still out. "This is like a baseball trade where you don't know from the outset who is the winner and who is the loser," says Gartner analyst Allen Weiner.
Through all the noise, however, consensus can be distilled to read that this is a good deal for both Microsoft and Yahoo! - it allows them both to focus on core competencies and in doing so gain strength - but that the combined strength is not a serious threat to a Google-dominated landscape in the near term. According to Rebecca Jennings of Forrester Research, "This deal should allow Yahoo! to give up its drive to beat Google, and concentrate on the elements it does do better, display media and social media , devolving the competition and the significant investment involved off to Microsoft." Andrew Frank of Gartner agrees: "In other words, this sharpens the distinction between Microsoft's 'technology company' role and Yahoo's 'media company' role, making it harder for Google to play both against their alliance."
Both Microsoft and Yahoo! have struggled to gain a footing against Google; Yahoo! struggled rather silently, but Microsoft took a direct swing at earning favor in the search arena - and has done relatively well with the release of Bing. "Microsoft has shown they can actually do something that has a chance of reversing the slide of both Yahoo and Microsoft against Google," said Neil MacDonald of Gartner. An associate of MacDonald's at Gartner is reported in Computer Weekly as agreeing: "Gartner analyst Allen Weiner believes the Microsoft/Yahoo tie-up will prove Microsoft's Bing search technology is a viable alternative to Google." Numbers also indicate that Bing has been successful in improving Microsoft's place in search; from a year ago Microsoft's share of the search usage market has gained 3 percentage points according to comScore. Still moving from an 8 percent to an 11 percent market share leaves the company far behind Google (with roughly a 65 percent share), as well a! s behind its new partner which holds about 15 percent.
Also, Bing's immediate success does not necessarily secure its future. Microsoft's ambitious release was accompanied by an equally ambitious $100 million marketing campaign. Success has its costs and some are questioning whether Microsoft's share will drop as advertising tapers off. Karsten Weide of IDC: "Microsoft's estimated search ad revenue grew by 5 percent, or $11 million, year on year, but it should also be noted that the company currently spends about twice as much per quarter on the Bing marketing campaign," Weide adds, "It remains to be seen if Bing can hold on to this market share gain after the campaign ends, or if this is merely a flash in the pan."
Furthermore, Microsoft's share may be rising, but Yahoo!'s has fallen. In the same time period in which Microsoft realized its three percent gain, Yahoo lost just about the same - falling from about 20 percent to 17 percent. Even though the combined share of both companies going after Google will effectively give them a quarter of the market they will also be married for better or for worse. "What happens if Yahoo keeps losing share? Is this still a good deal for Microsoft?," asks Greg Sterling of Sterling Market Intelligence. This is not to say, however, that the existing assumption is that Yahoo! will continue its decline. The company has made numerous statements to the effect that it will continue to improve and remain innovative. It appears that this is not all talk - just last week Yahoo! announced it had made a deal with Twitter which will incorporate real-time updates into Yahoo! search and allow for Twitter updates to appear across the company's network.
While he does note that the company is struggling for identity, Rob Enderle of the Enderle Group, acknowledges that Yahoo!'s Twitter deal is likely a benefit to the company: "This is a company struggling for relevance," says Enderle, "Social networking, rather than search, was closer to Yahoo's initial strength, and they lost their way by going after Google. This takes them back to their roots, and typically that is a good thing. This does give Yahoo some much needed visibility." Forrester Research analyst Augie Ray also sees the Twitter deal as a solid step for the Yahoo! and representative of a boldness on the company's part: "The Yahoo deal is more extensive than the deals Google and made with Twitter, and I think it demonstrates a new assertiveness on the part of Yahoo," Ray says. "The new Twitter-Yahoo deal has the potential to position Yahoo in the intersection of the search, content and social worlds."
Despite the strides that Microsoft and Yahoo! take together and independently they are still chasing a giant with a tremendous lead. The two may find renewed strength through their deal but they are not, at least in the short term a threat to Google. "I don't think it has any sort of dramatic short-term impact on Google," Greg Sterling told the E-Commerce Times. "Google has not been adversely affected by Bing's growth, and I think it's pretty stable. This will benefit Microsoft, but it won't threaten Google in any kind of meaningful way." IDC's Weide agrees, "A number of people have said Google should be scared now, but it's not like this is going to change the world or turn things upside down. This is going to make Microsoft and Yahoo more competitive but it's not going to dethrone Google." However, looking at the longer term, recent activity in the search space shows a Google with at least some cracks in its armor.
Google's stand-off with China made headlines at the beginning of the year and while it presented a company with the ambition to stand up to an entire government there could be a downside to the stance it is taking. "If it were to leave that market and Microsoft/Yahoo stay in, the result could be an enormous opportunity for Bing," stated Charles King, an analyst with Pund-IT. Furthermore, there is a change taking place in the face of search and the deal between Microsoft and Yahoo! is moving both companies in the right direction. Shortly after the two companies announced their alliance Shar Van Boskirk of Forrester Research noted that, "Google is a great search engine, but the next wave of search will be more than just finding websites . . . Both Bing and Yahoo try to do that, and the partnership will help them develop the online concierge experience that they offer." Google is also currently facing an antitrust investigation from the European Union, another hassle which coul! d lead to traction for its competitors. "If this were to turn into a big deal for Google, it could give the Microsoft and Yahoo consortium a chance to make up some ground," says Dan Olds, an analyst with The Gabriel Consulting Group. "Google has a big search lead in the EU and anything that slows them down or inhibits their business practices is, by definition, good news for Microsoft and Yahoo."
In the end, Google has one very big thing in its favor - it is Google; and as Forrester's Jennings notes, "People are so used to Google, shifting them will be hard." On the other hand this is the Internet and just about anything can happen - just like Twitter and other new rising stars, Google came out of nowhere.
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