OVER THE past 18 months, Yahoo has played a poor hand badly.
First the opportunity to sell out to Microsoft for $48 billion (€34 million) was squandered. Then, this week, new chief executive Carol Bartz announced a partnership with the Seattle-based software group in which Yahoo appears to benefit the least among all the search market’s participants.
Yahoo receives no cash upfront for ceding control of search to Microsoft, a surprise that pushed Yahoo’s shares down by more than 10 per cent on Wednesday. Instead, Yahoo has been guaranteed revenues per search for the first 18 months of the 10-year deal. It will also take over sales of premium search advertising.
Yahoo says that it expects the deal to contribute $500 million to operating profit in three years’ time.
But making such a complex deal work will be a slow and painful process. Microsoft will be handling the technology and automated sales, but Yahoo will be speaking to the clients. All the while, the two companies will apparently continue to compete in display advertising. Finally, although a decade is an age in internet terms, what happens when the partnership ends and Microsoft’s Bing engine powers all of Yahoo’s search queries?
Microsoft at least gets the scale that helps its Bing become more competitive against Google, giving it a chance to improve the online business that has been a 10-year money pit.
Google, meanwhile, will benefit from wearing a petticoat of competition while it continues to rake in cash. With two-thirds of the US search market, and more worldwide and in paid search, its dominance will remain untouched for years, if at all.
– (Copyright The Financial Times Limited 2009)
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