By now you have probably heard all about the Microsoft – Yahoo! search deal (if not, we have a summary of the deal up on the HirePPC blog). Pending regulatory approval, Microsoft’s Bing will become Yahoo’s search engine and Microsoft’s AdCenter will run the PPC ads. Yahoo will sell to premium advertisers and turn their attention toward expanding their display advertising and content empire.
It all sounded wonderful in the press release, but not everyone bought that line. Yahoo’s stock price dropped about 10% after the announcement. So if the deal isn’t all roses, the question is, who wins and who loses? Here’s our take:
The Deal is Good:
- For advertisers and SEOs. Both Microsoft and Yahoo (but mostly Microsoft) have been hurt by the fact that there are 3 major pay-per-click advertising platforms. No one passes up Google, because that’s where the biggest traffic is. But it takes time to manage PPC campaigns, and many advertisers haven’t bothered to try Microsoft’s system because the traffic doesn’t justify the time it would take to setup and manage it. Now, however, there will be only 2 major systems and it will almost certainly be worth a marketer’s time to advertise on the combined Microsoft-Yahoo platform. It will also make SEO’s lives easier since they won’t have to worry about their Yahoo rankings anymore.
- For Yahoo in terms of near-term cash-flow. Although they didn’t get an upfront payment from Microsoft, they will be able to cut back on some of the major operating expenses it takes to run a search engine while still collecting most of the revenue from it (88% for the first 5 years).
- For Microsoft in terms of marketshare and mindshare. There is no doubt that this is a huge win for the Bing brand. This deal will more than double Microsoft’s current share of the search market. In addition, they will be able to pump up the Bing brand in the mind of consumers who will soon see the phrase ‘Powered by Bing’ showing up on their Yahoo search results. Some of those searchers will certainly be curious about this Bing. Some of those searchers will never come back. You may recall another company who ‘powered’ Yahoo’s search not too many years ago (Hint: Google).
- For users. This is pretty subjective, but people seem to like Bing, for the most part.
The Deal is Bad:
- For Yahoo’s long-term prospects, and therefore its shareholders. There is a reason why Yahoo’s stock dropped, while Mircosoft’s stayed relatively steady. Some would go so far as to say that this deal was suicide for Yahoo. That might be a little over-the-top, but there is some truth there. Right now, search advertising is a bigger game than display advertising (in fact, it’s a bigger game than anything else on the web) and there’s no reason to believe that will change anytime soon. It’s an easy argument to say that Yahoo under-valued its search engine in this deal.
- For advertisers and SEO’s. Yes, this was on the Good list too. But think about it, this deal almost certainly means increased competition in places that once provided some cost savings for the marketers who had the resources or the acumen to advertise there. Increased usage means higher prices.
- For the search team at Yahoo. Unless they wanted to work someplace else anyway.
So there you have it. Now we just have to wait ten years to see if we were right.
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July 31st, 2009 at 12:36 pm
Overall, I think you hit the nail on the head but I don’t think we’ll have to wait 10 years to see how this pans out. Although Microsoft wasn’t able to outright acquire Yahoo, I think that this will position them for more leverage down the line.