Microsoft and Yahoo – together at last
It was a long time coming
Microsoft’s original bid for Yahoo back in January 2008 made the most popular Internet destination in the world worth $47.5 billion. The offer was rejected by then CEO Jerry Yang, resulting in Microsoft walking away from the table.
Yang then attempted to tie up Yahoo with Google and use that company’s search technology. However, that deal fell at the regulatory hurdle. Yang’s subsequent departure and the drop in quarterly earnings resulted in the layoff of 5% of Yahoo’s workforce in April 2009 and showed that new CEO Carol Bartz had to do something. When Microsoft’s new search engine Bing was released in June, with technologies gained from the FAST and Powerset acquisitions, outgunning Yahoo seach capabilities, Bartz knew that that something had to be dramatic.
Microsoft should be happy; Google should be a bit worried
Under the terms of the agreement (and still subject to regulatory approval on both sides of the Atlantic), Yahoo gets to use Microsoft’s Bing search engine rather than its own, and Microsoft gets to pay Yahoo 88% of search revenues arising from Yahoo sites for five years – but of course Microsoft also gets to keep $47.5 billion in the bank.
Microsoft gains exclusive licence to Yahoo’s search technologies, which Microsoft will be free to integrate into its own. It also gains access to all of Yahoo’s long-standing and loyal customers – this author has trusted and relied upon Yahoo! Mail for over ten years – and Yahoo’s self-serve advertising will migrate to Microsoft AdCenter. Basically, both companies are playing to their core competencies: Microsoft to the technology and Yahoo to its domain knowledge in advertising and media.
As Ovum has previously stated, Bing is not a ‘Google killer’. However, with the addition of Yahoo’s customer base and its targeting of higher-yield advertising, the new so-called ‘decision engine’ should start to give Google a serious run for its money, and provide better competition on price for prospective advertisers. Furthermore, as Ovum has previously described, the now bitter rivalry between Google and Microsoft should ensure that improvements to the functionality and usability of the respective search engines will continue apace.
Nothing will happen tomorrow – certainly not in Asia
Even if it gains regulatory approval, Yahoo’s use of Bing will not start until 2010 – and then on a geographical basis, with the priority being the US and then Europe. This will give Baidu, the strong Chinese Internet search provider, and Naver, the most popular player in South Korea, plenty of opportunities to reinforce and expand their positions in that geography. Given the potential size of that market, this could be a missed opportunity.
Yahoo and its shareholders appear to be the losers
While the deal is cited as boosting Yahoo’s operating income by $500 million and reducing costs by $200 million, the company’s shares are currently trading at only half the value offered by Microsoft in January 2008, and fell a further 10% after this announcement.
This does give Yahoo’s CEO Carol Bartz a period of time and some money to develop the organisation into its vision of being the world’s “largest online media company”. However, ten years is a very long time in the true market that is the Internet, and the use of Bing will not start until early 2010. Microsoft, or others, might still take the opportunity to buy the former Internet search leader at a marked-down price in the near future if Bartz cannot deliver that vision.