Microsoft Can Buy Second Place, but Can It Win Race?

Danny Sullivan on the Perils of Combining Forces to Fight Google

By Published on .

Was it just last week I was writing about why Yahoo shouldn't dump search? That being No. 2 is a good business? Apparently it's a $45 billion business, since that's what Microsoft wants to pay for Yahoo.


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Microsoft should have bought Yahoo years ago. In 2003, Microsoft made a decision to build its own search platform to serve editorial search results and ads. Yahoo went a different direction, buying the technology it needed. Snapping up Inktomi ads for $235 million gave it search results that today rival Google's. Overture was a $1.6 billion deal, but it gave Yahoo control of a huge paid-search business. Most importantly, it allowed Yahoo to keep pace with Google rather than waste time playing catch-up.

Think of it as a race: Yahoo and Microsoft looked up and saw Google scream past them in a sports car. Yahoo looked for a fast car nearby, gave the owner cash and sped off after Google. Microsoft entered the race by building its own car from scratch.

It was a costly delay. Sure, search is going to be a long race, and Microsoft might eventually catch up. That certainly was Microsoft's battle cry after short-term initial gains didn't happen. But we're coming into year five of Microsoft's dash after Google, and while Microsoft built a nice car, it has failed to keep pace with Google -- much less Yahoo.

Now Microsoft's hitching itself to Yahoo's car. The question is: Will Yahoo give Microsoft twice as much horsepower or simply turn it into a sluggish hybrid? It's a risk, but one that Microsoft probably has to take to ultimately win the race.

Integration will be a key issue. Yahoo's believed to have the larger advertiser base, and it has already migrated those advertisers to its Panama platform. They likely won't take kindly to moving to AdCenter. But would Microsoft really toss out a system it spent years building?

That's just one of many places where the companies overlap. Which becomes the flagship search brand: Yahoo, MSN or Live? Does Yahoo Mail go away? Surely Flickr will maintain its identity -- or will it?

A merger almost certainly will mean much consolidation and that may get consumers rethinking choices. You want me to move my mail account? Hmm, maybe it's time to check out Google's Gmail.

Microsoft is making much talk about "scale economics," as if just shoving Microsoft and Yahoo together will produce a critical mass of success. At the core, that means greater search share. But to date, combining search companies does not guarantee a magical increase in search traffic. Just ask Excite how well the WebCrawler and Magellan acquisitions helped its traffic. Or ask Infospace, which acquired Excite's search traffic after the company went bust.

Microsoft has not been hurting for cash or resources in its race against Google, so it's hard to see how the promised efficiencies of scale will somehow improve things dramatically. Certainly there will be some gains, but what Microsoft really seems to be buying is Yahoo's place in the search race. Unable to catch up, falling further behind, Microsoft is buying its way to No. 2. But as I said before, No. 2 can be a very good business -- certainly better than No. 3.

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Danny Sullivan is the editor in chief of, where he comments further on the bid.
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