Microsoft, Yahoo merge – a “game changer”

For those of you too busy to read the news in the past 24 hours, there’s been a pretty major development in the land of the search engines. Microsoft and Yahoo! have announced a deal whereby they will be combining their search offerings with the aim of invigorating the challenge to Google.

In essence, the deal means Microsoft will power Yahoo’s search. Searching through Yahoo! will still have Yahoo! branding, and be consistent with their look and feel, but will have ‘Powered by Bing’ at the bottom of the search engine results. It is said that Bing will be the exclusive algorithmic search and pay-per-click platform for Yahoo! sites.

Interview with Yahoo! CEO Carol Bartz:

While it may sound like Microsoft are getting the better of this deal, Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers, and will also continue to use its own technology for display advertising. However, the deal doesn’t cover other web products, such as e-mail and IM, so the companies will continue to compete on some fronts.

Considering that Yahoo! rejected a bid of almost $50 billion not so long ago, it may be surprising to hear that this deal will not include any money upfront. Instead, Microsoft are to compensate Yahoo! through a revenue sharing agreement on traffic coming from Yahoo’s owned and operated sites – 88% of generated revenue will go to Yahoo!.

The 10 year agreement will take around two years to come into effect, but will bear fruit to a more formidable search offering, with 30% predicted market share in the US. Many of those at Yahoo! will be offered new jobs at Microsoft while others will be offered redundancy packages.

In Australia, where Google holds a greater market share of approximately 90% (compared to around 65% in the US), this new union will have a harder time of breaking dominance. However, Bing has been holding its own since launch and reports have been pretty positive from the early adopters. Joe Pollard, ninemsn CEO, told B&T: “Since the global launch of Bing just two months ago, ninemsn has put in place ambitious plans to grow Bing in the Australian search market. We believe that successfully competing in search requires a combination of innovation, scale and an unmoving focus on satisfying the needs of the online consumer. Together with these elements, the new Microsoft and Yahoo! deal will have a positive effect on Bing’s trajectory. Although we are still very much in the early stages of collaboration, the deal will provide more consumers and advertisers with an innovative and engaging search alternative which is a great thing for the Australian market.”

It will be very interesting to see the real impact of this merger, and also hear how the intricacies of the deal will pan out as the next few months go by.

Tags: microsoft, News, Search Engines, yahoo