$137.8B U.S. ad spend for top 200 advertisers
On Feb. 1, Microsoft announced a $44.6 billion cash and stock bid for Yahoo, a move obviously designed to better compete with the search engine leader. Google currently commands 58% of the U.S. paid search market compared with Yahoo (23%) and Microsoft (10%), according to comScore Networks.
The question for b-to-b marketers is this: Would a combined Microsoft and Yahoo be good for business?
During a conference call announcing the deal, Kevin Johnson, president-platform and services at Microsoft, said advertisers will be better served by a combined entity.
"Today, the market is increasingly dominated by one player. By combining assets of Microsoft and Yahoo, we can offer a more competitive choice for consumers, advertisers and publishers. The fact is the industry will be better served by having a more credible alternative in areas of search and advertising."
For its part, Google raised antitrust concerns a few days after the announcement. In a public statement, Google said: "Microsoft's hostile bid for Yahoo raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."
Further down in the statement, posted on its Web site, Google posed the question: "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?"
Ned May, lead analyst for search at Outsell, a market researcher, agreed a competitive market is better for everyone.
"It's bad news because it's better to have a competitive market for the advertisers looking to display on the Web," May said. "It turns it into a Google-versus-Microsoft story."
Danny Sullivan, editor in chief of Search Engine Land, published by Third Door Media, and a search industry veteran, said a merger could simplify the paid search process for advertisers. "They can go into one system rather than two," he said.
Transforming Beyond Search
Heidi Melin, senior VP-CMO of Polycom Inc., which manufactures teleconferencing equipment, said the deal will be "transformational," and go beyond search advertising.
"The combination of the two companies provides the best opportunity to compete with Google, not only in search and online advertising but in online services and software," she said. She added that the merger, if approved, would provide more opportunities for advertisers in these areas, provided Microsoft handles the integration issues properly.
Mark Gambill, VP-CMO of IT distributor CDW Corp., said the deal, if approved, could affect CDW's online marketing.
"We're a close partner of Microsoft, and Yahoo is a strategic partner in terms of the different levels of relationships we have with them," Gambill said. "We certainly advertise with them today." Given Microsoft's strong presence in the b-to-b environment, he said, the deal could have important implications for b-to-b marketers.
"Microsoft is so dominant and has such a presence with businesses of all sizes. If they do [the merger] correctly, it could create more visibility for more targeted, vertical advertising," he said.
Others agreed that Microsoft's access to the business market, particularly small and midsize sectors, gives it the edge in terms of combined online services that would include search.
"It's going to hurt Google, especially on the b-to-b side," said Lauren Robinette, commercial segments manager for Cisco Services, a division of Cisco Systems. "Yahoo and Microsoft are well positioned for the SMB market relative to search, because Microsoft is in the b-to-b space.
"We're not going to see that much of a market shift in terms of buying search, because Google reaches more of the audience you need to reach from a b-to-b advertising standpoint," Robin- ette said. "If you are going to advertise, you'll advertise with Google."
"If you look at Microsoft being embedded on the desktop in the enterprise and search engine becoming more critical to the intranet, for them to plug in a Yahoo puts them on the back end of the enterprise," Robinette said.
Outsell's May does not see monopoly issues related to the search marketing aspect of the deal. Search, he said, "is a market dominated by a few players. But it's still a fast growing, evolving market, so it'd be difficult to argue that it is creating any monopolistic concerns." He added the piece of the deal that will garner the most scrutiny is the issue of whether Microsoft is going to bundle the Yahoo experience into the desktop browser.
Has Google Already Won?
But some observers say Google has already bested Microsoft in terms of online, browser-enabled applications, which have seen a strong uptake among consumers and some small businesses.
Forrester Research analyst Charlene Li summarized the bid in her blog, Groundswell, this way: "Microsoft is interested in search because it provides a beachhead into businesses, especially small and medium-sized ones who don't have a direct relationship with Microsoft. That's Google's real threat."
But Li also noted that branding and display advertising are where Microsoft and Yahoo have a leg up. "Together, they have worked with the top brands online for more than a decade and have won the confidence of interactive agencies," she wrote. "They own top ad networks, and Yahoo has built relationships with publishers."
If the long-term threat remains to be seen, most industry watchers agree the possibility of Microsoft and Yahoo merging gives Google a definite short-term advantage.
"This is a good thing for Google," said Shar Van Boskirk, principal analyst at Forrester Research. "Any marketer who has a relationship with Google and wants to use Google will find them continuing to innovate and possibly create new ad formats, while Microsoft and Yahoo are spinning their wheels focused on how to bring two giant companies together."
Search Engine Land's Sullivan agreed. "They're going to get a short burst of speed. They may be able to increase their lead. This gives Google a chance to breathe and solidify," he said. "This kind of integration could take anywhere from six months to a year. That's a lot of dog years."