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Jul 30, 2009

Crikey wrap: Yahoo + Microsoft = Google killer?

Yahoo has 20% of the search engine market, Microsoft 8% and Google 65%. So it was perhaps a no-brainer that Microsoft and Yahoo would eventually hook up to defeat their common enemy. Here's what pundits are saying about the deal.

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Yahoo has 20% of the search engine market, Microsoft 8% and Google 65%. So it was perhaps a no-brainer that Microsoft and Yahoo would eventually hook up to defeat their common enemy.

Still, says Newsweek‘s Daniel Lyon, it took a lot of courting:

These two companies have been dating and flirting and breaking up and then getting back together for so long that it stopped being interesting a long time ago. More than anything else, I’m just sick of reading about it on blogs. I’m just glad it’s over. Mazel tov, Microsoft and Yahoo. And God bless you. Now would you please, for the love of all things holy, just leave us all alone? Please?

The essence of the deal, says Dwight Silverman on the Houston Chronicle‘s tech blog (which has also designed their new logo free of charge), is that “Yahoo will use Microsoft’s improved Bing search engine, while Yahoo will sell ads in the search areas on both sites. Microsoft’s technology will be used to serve up the ads.”

Yahoo will still look much the same — it will continue to brand its own search page and maintain its own identity, says PC World, but Microsoft’s Bing system “will be doing the behind-the-scenes work on all the searches. It’ll be considered the ‘exclusive algorithmic search and paid search platform’ for all Yahoo-related sites”.

It’s a deal that makes sense, writes Greg Vogel for Forbes. Yahoo is a media company that shouldn’t get distracted by technology and Microsoft is a technology company that needs to do media better. But we shouldn’t get carried away:

It keeps Yahoo autonomous and marginally improves Microsoft’s footing to compete with Google, but that’s about it. Google will continue to dominate search, irrespective of any deal between Microsoft and Yahoo!

In the end, Microsoft looks like the victor (of this day anyway).

Given that Microsoft was willing to pay around $45 billion for all of Yahoo in early 2008, the latest deal between the two is a quite a coup for the software giant, says the Wall Street Journal: no cash upfront — a revenue-sharing deal instead — and effective control over Yahoo’s search business, which is Microsoft “always wanted”.

And if Microsoft is the conquering hero, that would make Yahoo the loser — something its share price certainly reflected. As Lyons observes:

Microsoft and Yahoo took pains to write this up so that Yahoo could save face. For one thing, Yahoo’s salespeople will continue to sell ads. And Yahoo will save money by not having to develop its own search-engine technology anymore. Microsoft will pay Yahoo a generous split on the revenues generated by searches on Yahoo’s site. Yahoo claims the deal will add $500 million to its annual operating profit.

But let’s be honest here. Yahoo is the loser. They were weak, and vulnerable, and the truth is they had no choice but to go along. Microsoft hasn’t been able to gain traction in the search market, but it has something better than traction — it has money. Now it has bought itself a position that will enable it to become a credible competitor to Google.

And what of Microhoo’s ultimate competitor? Google will likely bide its time responding to the deal — after all, anti-trust issues could still upend the alliance. Kara Swisher, who’s been chatting to her sources at Google for All Things Digital, says that:

Sources close to the situation said Google will likely try to keep a low profile at first in opposing the deal announced today, positing that regulators have the same opinion about fewer competitors in the market as they did when opposing a similar Google-Yahoo search deal last year.

“Is Google siccing the dogs on this deal?” asked one person familiar with Google’s thinking. “Or will it wait for regulators to cast scrutiny on a deal that drops the number of competitors from three to two?”

And so we arrive at the question that this deal poses: is Microhoo a real threat to Google’s search engine dominance? Many are unwilling to crystal ball gaze but Mark Sullivan at PC World is supremely sceptical:

So the reported deal will give a nice boost to Bing’s user base. Meanwhile, Yahoo would get to focus on its core strengths — advertising and content. Great, but how is this deal going to put Microsoft and Yahoo in a position to make a serious run at Google? How will Bing win over substantial numbers of existing and potential Google search users?

I’m not seeing it (and neither does blogger Ian Paul). People often use the search engine that seems familiar to them. For most people today, that’s Google. Google has done a lot to integrate search with its other applications, making it even harder for users to defect.

I’m ready to believe that Bing is a better search engine than Yahoo’s search engine; most of the Yahoo faithful will be pleased with it. I’m impressed at some of the innovations the Microsoft engineers have brought to search with Bing, an area of innovation Google has dominated for years … [but] I’ve seen no evidence that Bing’s algorythm searches the deeper, darker corners of the web any more thoroughly than Google’s, or for that matter, Yahoo’s.

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