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Yahoo to Lead Ad Sales in Microsoft Search Deal

Online Ad Business Braces for Shakeup as Pact Gives Bing Nearly 30% of Market to Rival Google's 65%

By Published on . 22

NEW YORK (AdAge.com) -- Microsoft and Yahoo tomorrow are expected to announce the search pact earlier reported by Advertising Age, a deal that will trigger a major re-ordering of the online ad business and create what they hope will be a more-credible competitor to Google.

Under the deal, Microsoft's Bing becomes the default search engine on Yahoo, but Yahoo retains the ability to sell search.
Under the deal, Microsoft's Bing becomes the default search engine on Yahoo, but Yahoo retains the ability to sell search.
Through the pact, Bing will become the default search engine on Yahoo, creating a search player with close to 30% market share of search queries, compared with Google's 65%, according to ComScore data.

One of the most interesting wrinkles involves who takes ownership of search sales: Yahoo is likely to take on exclusive representation of Bing inventory to eliminate channel conflict and complexity for advertisers, but not before both sides unwind the thousands of advertiser relationships and proprietary systems through which many large advertisers buy search ads. Microsoft's AdCenter is expected to be the sales-technology platform.

It's an incredibly complex task, and individuals close to both sides say they have no reason to rush that aspect, especially because they expect some antitrust scrutiny from the Department of Justice, which could determine how that part of the deal is ultimately structured.

Changing focus on both sides
The deal will take Yahoo out of the search-technology business so it can focus on media, marketing services and sales. Microsoft, especially if it can cede search sales duties to Yahoo, becomes more of a technology and infrastructure company, its disciplines better aligned with its strengths. (It would still, however, have a massive global display-ad sales business.)

In return, Yahoo will retain the ability to sell search and have access to an even bigger pool of search data that it can use to target users with display ads.

Executives on both sides agree that the optimal structure for the deal would be to have one point of contact selling search inventory, but that will require restructuring vast departments with multiple heads at both Microsoft and Yahoo, which could take time.

In addition, Microsoft in particular is very concerned about the Department of Justice's reaction to the deal and they may seek its blessing, much like Google attempted to do last year before it went forward with its proposed search deal with Yahoo. Unlike that Google-Yahoo deal, this Microsoft-Yahoo one appears to have broad support from advertisers, which have long argued that the market needs a second strong search player to foster competition.

Microsoft executives are said to be concerned that behind-the-scenes lobbying by Google will sway regulators and could delay implementation of the deal for months. The irony here is that Microsoft was the main force lobbying against Google's attempt to do a search joint venture with Yahoo, as well as the force organizing advertiser opposition to the pact.

Yahoo comes in with a larger share of the search business than Microsoft, but it doesn't have as much financial firepower as Google or Microsoft, and observers say it will have trouble defending its share without a deal. Microsoft, on the other hand, has a vast capacity to spend on search, but an unproven ability to take share from anyone but Yahoo. Yahoo declined to comment on the deal.

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Contributing: Abbey Klaassen

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