Digital Media Buzz > MicroHoo Works Toward No. 2 Spot in Search

MicroHoo Works Toward No. 2 Spot in Search

Yahoo

By Contel Bradford

Well, the partnership between Microsoft and Yahoo that has been rumored for more than a year finally became reality. However, it isn’t exactly what the software giant was initially looking for. Instead of a merger, the companies will integrate their search and advertising models in hopes of competing with market leader, Google. Per the agreement, Microsoft will power the Yahoo search engine while Yahoo will act as the exclusive global relationship sales force for the premium advertisers of both companies. Considering that both are major players in the Internet world, this is one partnership that will undoubtedly shake up the online advertising industry.

According to their respective executives, the two companies reached a revenue-sharing agreement that will see Microsoft compensating Google based on traffic generated through Yahoo’s portfolio of affiliate and O&O (owned and operated) websites. In addition, the RPS (revenue per search) from Yahoo’s O&O sites will be guaranteed for the first 18 months in each country proceeding the initial implementation in those particular nations. Microsoft’s AdCenter will handle self-serve advertising for both companies and continue to set prices for search ads with its automated auction process. This will likely result in a hotly contested battle between Microsoft Ad Center and Google Adwords as well as Microsoft PubCenter and Google AdSense. For those looking to indulge in online advertising, this is definitely a win-win situation.

Many analysts believe that the Microsoft-Yahoo partnership will provide Internet marketers with a viable alternative to Google’s dominant advertising platforms. “A lot of advertisers and agencies are going to be interested in this new platform because it’s going to create some scale,” explains Greg Sterling, principal analyst for consulting and research firm Sterling Market Intelligence. “Google has a more formidable competitor now in the market from an advertising perspective. On the consumer side, it doesn’t have any more to be worried about today than it did yesterday.”

In recent times, Microsoft has demonstrated its ability to compete in the search market with the introduction of Bing. A reincarnation of Windows Live Search and MSN Search, Bing has quickly garnered the reputation of being an efficient search engine that people actually enjoy using. Moreover, it certainly doesn’t hurt that Microsoft has the financial resources to aggressively market the search engine while both companies can leverage the technology needed to bring forth innovations in search and web usage in general. Whether this is enough to impact Google’s core speciality and seize a notable market share is something we can argue about for months.

The Challenge Ahead
Whenever these two Internet superpowers do form their alliance, success is not guaranteed as they have an uphill battle ahead of them. To say that Google is the king of online advertising would be a vast understatement. More than 90 percent of its $20 billion annual revenue comes from advertising. The company’s successful advertising model includes well-known programs such as AdWords and AdSense as well as sponsored SERP inclusions for businesses looking to increase their visibility through the search engines. Early this year, Google announced the forthcoming of enhancements to its AdSense program, which will soon use behavioral tracking technology to serve ads that better suit the interests of potential customers. With the promise of being able to increase brand awareness and click throughs, this enhancement is very appealing to online advertisers. In short, the fact that Google has so many products and solutions along with a higher number of loyal search users and advertisers will make it very difficult for the team of Microsoft and Yahoo to wrestle away even a decent size of the market.

Internal Reaction
As you would imagine, both parties in the deal are being tight-lipped about the partnership when it comes to many of the specifics. “It is too soon to discuss the partnership with Yahoo. Right now our focus is on getting to a great No. 2 player in search for consumers and advertisers,” a Microsoft spokesperson says.

Brad Smith, general counsel for Microsoft, openly admitted that neither Microsoft nor Yahoo has enough search pull of their own to compete with Google. “Clearly, scale is an important factor for success in search advertising because advertisers want audience,” he says. “Neither company comes remotely close to offering Google’s scale. This agreement will help bridge that gap.”

Though a lot has been put into motion, nothing is etched in stone as the U.S. Justice Department is currently reviewing the proposed search and advertising agreement. While it remains to be seen if Google will protest the partnership, the search king does appear to be interested in the deal. In a recent statement, a Google spokesman says, “There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users.”