Microsoft and Yahoo search for greater market share

The long anticipated 10-year deal may pose a serious challenge to Google's dominance in the online search sector, writes Ciara O'Brien

YAHOO AND Microsoft have joined forces in an attempt to challenge Google’s dominance in the internet search market.

Announced on Wednesday, the 10-year deal will see Microsoft provide the search engine on all sites owned and operated by Yahoo. In return, Microsoft will pay traffic acquisition costs (TAC) to Yahoo at a rate of 88 per cent of search revenue generated on Yahoo’s sites for the first five years.

Yahoo, meanwhile, will take over advertising sales on Microsoft’s websites while “self-serve” ad sales for both companies’ sites will use Microsoft’s AdCenter platform.

The deal has been expected for some time. Speculation about the possibility of an alliance has been rife for months, with high-profile investors such as Carl Icahn publicly coming out in favour of an agreement between the two.

Last year, Yahoo rebuffed an offer from the company to buy it for $44 billion. In the aftermath of the failed deal – spurred by angry shareholders – Yahoo co-founder Jerry Yang was replaced by Carol Bartz as chief executive.

The Microsoft deal could see a new challenge to the dominance of Google in the market. The search market is a lucrative one. Last year, Google generated revenues of about $22 billion, the bulk of which was made from advertisements included with its search results.

But both Yahoo and Microsoft have trailed Google in the search stakes.

“I think that’s almost the fault of MS and Yahoo for so long, that they just became complacent and they didn’t see how powerful Google was becoming,” said communications consultant Damien Mulley. Both companies are now hoping that this will change, particularly with the launch of Microsoft’s revamped search offering, Bing. Unveiled in June to great fanfare, Bing made some gains early on, but is still lagging behind Google’s dominant first place, and slipped to behind Yahoo in the latest figures from internet monitoring firm StatCounter.

Microsoft EMEA director of search Peter Maxmin said the force of both companies’ search technology and advertising sales reach would prove beneficial for consumers.

“We think it’s going to be great for consumers and great for customers. With the deal we’ve done with Yahoo, we get a number of benefits that we think will help innovation,” he said.

“From a European and Irish consumer perspective, we’ll be able to innovate and go beyond the links we see on the web today.”

The increased traffic to Bing, which is still in beta in Europe, will likely boost revenue from associated advertising for Microsoft. StatCounter’s Aodhan Cullen believes the deal is a good one for Microsoft.

“This is a great deal for Microsoft. Bing in July is heading for about 9 per cent of the US market, so jumping to 20 per cent whenever they implement this is a huge deal for Microsoft to get that. It more than doubles their share overnight,” he said. “From Yahoo’s perspective it’s a bit like they’re throwing in the towel. Yahoo have invested in their own custom search technology for years. They’re literally giving up the fight now and letting Microsoft become the search engine for them.”

The move may also have a knock-on effect for European customers, with the possibility of an increase in services available to Irish businesses. Mulley says, Google’s advertising service is the only one available and competition, he says, would be welcome.

Maxmin confirmed that new services are likely to be available to the Irish market. “The intention of the deal is to have AdCenter available to all markets,” he said.