The recent deal announced between Microsoft and Yahoo strikes me as odd.
I understand that they are looking to create a competitor to Google in both search and advertising, but the “price paid” seems very high - at least on the part of Yahoo.
Major terms of the deal:
- Microsoft will be powering Yahoo search
- Microsoft have licensed Yahoo’s search technology for 10(!) years
- Microsoft will run paid search via their search engine
- Yahoo will be providing the advertising sales force for their combined “paid search” capability
- Each company will still maintain separate advertising sales forces for other advertising
- They enter a revenue sharing agreement, but Microsoft guarantee Yahoo will get at least existing revenues for the next 18 months
- Microsoft pay most of its traffic acquisition costs
So, boiling it down, it appears Yahoo are giving up their search engine technologies (for at least 10 years) in conjunction for (at least current) revenues to be paid by Microsoft for algorithmic search advertising.
Microsoft have to maintain a sales force to sell other advertising, so they aren’t saving costs there. They are still having to maintain search so they aren’t saving costs there. They are paying Yahoo for traffic acquisition, and revenue for algorithmic search advertising, so they are losing money there. Their benefit seems to be
- Acquisition of a license for Yahoo’s search technology - given they’ve just released their own shiny new engine, is this an asset or liability?
- Traffic - this is what Microsoft are in the deal for for. Traffic from Yahoo.
10 years is a long time. Search changes a lot in 10 years. Google was only just starting out 10 years ago. Altavista (at least where I was using the web) was top dog back then. I’d be interested to see if Yahoo are going to maintain their search technology, or just let it die off. Is this a sign that they no longer want to compete in search, but be a destination that pulls together other properties (harking back to their very early days I guess). I guess time will tell if Yahoo’s apparent specialisation strategy was a sensible or dumb move. Microsoft are banking on Bing becoming a google killer, or at least a serious competitor, in the long term. They also apparently believe that paid search results are the way of the future - that’s why they want the traffic.