What Yahoo+Microsoft means for marketers

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Late last month, Yahoo Inc. announced it would begin using Microsoft Corp.'s Bing as its default search engine. The deal, which still needs federal regulatory approval and could take up to two years to implement, has long-range implications for search marketers, according to industry observers.

“The complexity of the deal means it won't hit the market for a while, so we'll continue to look at Yahoo and Microsoft basically as we do today,” said Kathy Sharpe, CEO of New York agency Sharpe Partners.

But shesaid the Yahoo-Microsoft alliance—heralded by the two partners as offering needed competition for search leader Google Inc.—may, in fact, lessen user choice. Why? Simply because the choice of general search engines will be reduced from three to two, she said.

“From our point of view, the downside is that we'll now have two major players, both of whom are technologically adventurous and who could have done some interesting things in the market, and who now are teaming up,” Sharpe said. “I think this gives marketers less choice.”

Google currently leads in all search queries (holding 77.5% of the market, as of July, according to Internet data company StatCounter), followed by Yahoo (11%) and Bing (9.4%). As a result, pay-per-click search advertisers have tended to use Google first because it attracts the largest number of searchers.

This reality is borne out by another key metric, the search engines' share of search dollars, which continues to shift in Google's favor. The company captured 72.3% of search expenditures in the second quarter of 2009, up almost 2% compared with the same period a year ago, according to J.P. Morgan.

Virtually all that gain came at Yahoo's expense, as its share of search revenue fell year-over-year by about 2% to 20.9%. Microsoft's search engine, previously called Live Search, fulfilled its role with 6.8% of search dollars—virtually unchanged from last year.

However, the Yahoo deal could provide greater exposure to Microsoft's Bing and attract advertiser interest.

“That is the key. Bby building up search queries and volume, the Bing platform can really shine,” said Mark Simon, VP-industry relations with New York-based digital agency Didit. He said that greater exposure will highlight Bing's inherent qualities.

“We love Bing,” Simon said. “We think it's tremendous because it gets right to what you want, broken out in order, and with side panels to direct you further. But without this deal, Bing would have taken a long time to really demonstrate its advantage.”

Another area sure to attract marketers' attention is the emerging arena of mobile search. Yahoo currently has 34.6% of the mobile search market in the U.S., compared with Google's 63%, according to comScore. But Microsoft's recent deal with Verizon to be its exclusive search provider is just getting under way, and together Yahoo and Microsoft will have additional exclusive mobile search deals with T-Mobile USA and AT&T. (Google has a mobile search exclusive with Sprint Nextel.)

“Verizon has 86.6 million users, and Microsoft has lots of other partnerships which present value to advertisers,” Simon said. “With all those partnerships come a lot of data, which may allow advertisers in the long run to buy segments in the audience they're looking for. That's a major value to an advertiser.”

In addition, while search advertisers will benefit from Yahoo-Microsoft's greater scale, there also may be added value in the synergy between search and display ads, where Yahoo is the industry leader.

According to comScore, Yahoo sites rank as the top display ad publisher, with a 13.2% share of display ad views. Microsoft sites attract 5.5% share of views, while Google sites are laggards here, with just 1.3% of display ad experiences.

While display was not part of the deal as announced by Yahoo and Microsoft, there may be yet-to-be discovered synergies. According to a survey by search engine marketing company iProspect and Forrester Consulting, search and display advertising go hand in hand in driving potential customers to business Web sites.

According to the companies' “Search Engine Marketing and Online Display Advertising Integration Study,” released in May and based on an online survey conducted in January of 1,575 marketers, 31% of Internet users initially respond to a display ad by directly clicking on the ad itself. But a “latency” effect of display ads prompts 49% of Internet users to eventually search for a company, product or brand they were exposed to via an online ad.

“This will help, especially in today's world of retargeting and remarketing to people who have abandoned search sites after their queries, with marketers looking to find them again on other display networks,” Simon said.

While Yahoo will drop the search side of its business, it is expected to take over the sale of pay-per-click search ads for both companies and also be able to access a larger search database that will allow it to target users with its display ad business.

If there are any questions that remain about the deal, it's whether the new Yahoo-Microsoft search paradigm eventually will matter when it comes to marketers' first choice. Google is not the search leader for nothing. It is known for innovation and will not stand still for the next two years while Yahoo and Microsoft gear up to savage its business prospects.

“Further, Yahoo's stock price seems to indicate some unhappiness with this deal,” said Ned May, director and lead analyst of search with media research and advisory company Outsell Inc. “My interpretation of this is that the market doesn't believe Microsoft will do a better job of developing and running search technology than Yahoo has done.”

“Microsoft has spent aggressively for years to create its own search business, and it hasn't succeeded,” said May, adding rhetorically: “So now it's bought it. But can it sustain it?”

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