The deal of the summer is undeniably the agreement between Microsoft and Yahoo! It is their common rival, Google, that brought about this relationship between two unlikely partners. If it results in a (minor) re-shuffling of the cards in the competition between search engines, its impact will be concentrated mainly in the American market. The members of the Yahoo! Newspaper Consortium hope that in the future all Yahoo!’s efforts will focus on an area that is an exception to the deal: display advertising.
The final episode in an epic offensive for taking control of Yahoo! by Microsoft (that began at the start of 2008) would appear to be extremely reasonable. On 29 July, last winter’s enemies discovered an area in which they could agree a ceasefire based on technological (Yahoo! abandons its search engine to the benefit of Microsoft’s BING) and commercial concessions (Yahoo! becomes the exclusive “strike force” for selling advertising by search engine on its and Microsoft’s websites).
The agreement has been entered into for ten years (the most important points:www.choicevalueinnovation.com/thedeal/pressroom/Default.aspx). It is stipulated, above all, that Microsoft will pay Yahoo 88 percent of revenue for search ads on Yahoo sites, at least for the next five years. The two new partners are focusing their joint efforts on the general audience search market and are leaving upon avenues of escape should the marriage fail to bring the expected added value.
An impact especially in North America
In the lucrative search engines market (search revenues totalled $10.5 billion for the full year 2008 in the U.S), the situation in North America differs to that in the rest of the world. Google will not be challenged in the immediate future on the European market, where its search engine is largely dominant with a more than 80 percent market share. In Asia, Internet users tend to favour the local players (e.g. in China and Japan). In North America, however, the situation is changing. Google held 65 percent of the market in June 2009, far ahead of Yahoo! (19.6 percent) and Microsoft (8.4 percent). The Microsoft-Yahoo! agreement creates a new force that will hold nearly 30 percent of the market.
(source comScore qSearch/April 2008)
From the advertising point of view, this leaves the advertisers with two major contacts: Yahoo! and Google. As for Google-only advertisers (estimated at 800,000 advertisers), Carol Bartz, CEO of Yahoo!, said that combining Panama (Yahoo! ad platform) and AdCenter (Microsoft ad platform) will help to win them back compared to having to deal with three different platforms (Yahoo, Microsoft and Google). Steve Ballmer, CEO of Microsoft, added that the bulk of Google-only advertisers are outside the U.S. “Google has 78 percent of the paid search market here, but I would estimate they have something like 92 percent of the market in Western Europe, and at least there's a clear alternate choice, and so those 800,000 advertisers, many of them who are in the U.S., at least know now clearly here's the second place to work” commented Ballmer.
And the newspapers?
Ken Doctor, media analyst the Outsell research company, points out that the fact that agreement is focused on search activities limits its effects for the members of the Yahoo Newspaper Consortium (about thirty of the largest American newspaper groups). “Newspaper companies like being able to sell Yahoo.com inventory, a key part of the consortium deal. They are also figuring out how to purpose the Yahoo APT behavioural-targeting technology to better sell their own site inventory. What they haven't liked is the uneven implementation they've seen from Yahoo, a company making its first major foray into the Vendor Land. So if the deal gets approval, if it gets done "early next year," then, maybe Yahoo will focus more on the business that is key to Yahoo's -- and its newspaper partners' -- future: BT (behavioural targeted)-driven display advertising” says Ken Doctor.
Search advertising does have an impact on newspaper companies since most Yahoo! consortium members take Yahoo search and paid search, both services that would be replaced by Microsoft's new Bing and related products. “The newspapers' paid search deal with Yahoo has provided a steady, if small, revenue stream -- guaranteed -- over the first couple of years of their agreement. Last I have heard, not too many had exceeded that guarantee” adds the analyst. “So when Microsoft replaces Yahoo search, which will give it a roughly 30 percent share of search combined, perhaps it can drive higher search pricing”. Ken Doctor regrets that the deal excludes display advertising and considers that newspapers have improved their performances by selling the Yahoo network websites to their local advertisers and of course they could have benefited from adding the Microsoft network websites.
Awaiting the green light from the antitrust authorities
The major outlines of this new road map are laid out, but the deal must be confirmed by the American and European antitrust authorities. Yahoo! and Microsoft expect to get the green light at the beginning of 2010. Even though the situation is a little different, it is still interesting to recall the failure in November 2008 of an attempted advertising partnership between Yahoo! and Google. David Drummond, Senior Vice President, Corporate Development and Chief Legal Officer at Google, said the following about the breakdown of this agreement: “After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners”.
To learn more about the deal: www.choicevalueinnovation.com/thedeal/announcement/transcript.aspx
