After much talk and a fair deal of decision making, Steve Ballmer of Microsoft signed a deal with Yahoo’s Carol Bartz: A deal that will evolve Microsoft into the world’s 2nd largest search company and turn Yahoo into a media powered advertising broker. Yahoo is all set to hand over searching to Microsoft, who will in turn pay them a share of future revenue.
Here is the deal broken-down and analyzed by the key players:
Microsoft
What it obtains is far greater search market share in a single day than it could have hoped to gain from organic Bing growth irrespective of how much people may like it. The availability of Yahoo’s search technology to Microsoft will enable them to choose what it might want to make use of on Bing.
Microsoft was able to avoid having to make an upfront payment in order to take control of Yahoo search, as had been rumored for months and hinted at by Bartz herself: She claimed that “boatloads of money” would be required to lure Yahoo search away from the company.
Microsoft was able to avoid having to make an upfront payment in order to take control of Yahoo search, as had been rumored for months and hinted at by Bartz herself: She claimed that “boatloads of money” would be required to lure Yahoo search away from the company.
However, the downside of this deal for Microsoft are that it may have to bare the loss of relationships with advertisers on search ads, although it preserves its display ad sales operation at least for the time being. Apart from this it seems that Microsoft has emerged from this deal rather clean.
What’s next? Intense competition with Google. This only means that the 2 superpowers have even more reason to detest each other.
What’s next? Intense competition with Google. This only means that the 2 superpowers have even more reason to detest each other.
Yahoo
For an outsourced search engine, Yahoo is paying below market rate. It will receive 88 percent of future search revenue from Microsoft- A better ongoing deal than expected as per IDC. It also receives a guaranteed amount of search revenue for one and a half year and gets to market all the search ads on both Yahoo and Microsoft properties. Plus, it gets to save money- One of the main priorities for Bartz and new Yahoo CFO Tim Morse. The company estimated a $200 million saving in capital expenditures and see an overall benefit of $500 million in operating income.
But what Yahoo loses is the ability to control its own fate when it comes to search which still is the most profitable division of online advertising by a large margin. Yahoo’s search revenue is now dependent on the performance of Bing for a decade which is considered an eternity in the Internet world! Moreover, 88 percent of something is not 100 percent of something.
What the future holds is probably another reorganization and a large number of departures as talented search engineers view their options among Microsoft, Google, Ask.com, and start-ups.
More attractive earning calls are expected where Bartz can pin point to the cost savings from the deal, and the formation of a long-term plan for the company that avoids dropping businesses.
More attractive earning calls are expected where Bartz can pin point to the cost savings from the deal, and the formation of a long-term plan for the company that avoids dropping businesses.
What Google gets is time. This deal is scheduled to take months, probably even years, to complete and it will be a complicated process of integration. It is highly likely that Google sales representatives called and reminded all of their major clients of the uncertainty that shadows this integration process and the fact that their ad money may be better invested with the more stable property. Google also gets to counter some of the antitrust scrutiny that has been sent its way by detecting and stating that a combined Yahoo-Microsoft search operation has a fair share of the market.
On the other hand, it forfeits the ability to play Yahoo and Microsoft search off each other. The fractured competition meant it would have been much more difficult for either company to create noteworthy inroads against Google individually. It also transforms Microsoft into a credible technology threat with Microsoft’s right to select the best of Yahoo’s search technology developments and blend them with Bing, which is pretty well-received.
What’s to come: For now at least, business looks to carry on as usual. Google never intended to cede its search lead prior to the declaration of this deal, and there is certainly more pressure to keep up to that promise now, over the following several years. It’s not something that was not expected in broad View.
Consumers
The only benefit receivable to consumers is ‘Powered by Bing’ search results on Yahoo pages. To be precise, consolidation is viewed as a negative for consumers, as it limits one’s choice.
At this point, with multiple details left to be hammered out, the consumer impact of this deal is certainly not obvious. Many would like to argue that if Yahoo was not really committed to search, consumers would view better search results with time on Yahoo pages that are powered by Bing. To add to this, indirect benefits to consumers are part of the package of having advertisers that are not chained to a single search engine. But this is more about setting Yahoo free to concentrate attention on its other businesses and providing Microsoft with more market share in order to force Google into playing cautious on search, which could reduce some of the pressure Google is piling on Microsoft with projects like Google Apps, Android, etc.
The impact of these decisions will take a considerable period of time to come down to the level of the consumer with the assumption that the government embraces the deal.