Who doesn't like bacon? In the short term or in small doses it tastes great and heck it is low in calories (high in fat). You eat it every day and in the long term it will kill you. That's what I think about the Microsoft Yahoo marketing partnership. In the short term it helps Yahoo but in the long term it kills their search business. The most significant part of this deal to me is that Bing will power Yahoo's search and that's going to kill Yahoo over the long term.
PRE GOOGLE OVERTURE RULED
Back in the early days of search, I cut an advertising deal for CSFBdirect with GoTo.com which would later be rebranded as Overture. This was before Google had a paid advertising platform. The folks at Overture were great and so was the platform powering our paid search results for delivering new account openings. Everyone was happy, everyone that is who wasn't getting screwed on the bid spread. Anyway then along came Yahoo who bought Overture.
YAHOO FAILS TO INVEST IN SEARCH - GOOGLE GROWTH
In 2003, Yahoo bought Overture and in the beginning things were fine. The search sales team remained the same and our results were pretty steady. Google came on the scene and then of course the paid search landscape changed. However Yahoo held its own for us (then Harrisdirect) but by the middle of 2004, Yahoo really started to tank and Google zoomed past them. This was a double whammy for Yahoo. They hadn't invested in the search platform and Google grew which actually ended up hurting them. Google never looked back and left Yahoo in their dust.
Basically Yahoo is repeating history. Clearly they were caught off guard by Bing with all of their management shakeups and as I wrote Yahoo was the short term target for Microsoft with Bing. In fact, Business Week's article on Bing a month back or so highlighted how much damage it would do to Yahoo. Now instead of being able to invest in their search platform or my likely because of their lack of investment in the search platform in recent history (Lu left Yahoo in August 2008), they can't compete with Bing let alone Google.
Therefore Yahoo pretty much dooms itself in the long term by ceding control of their search technology to Microsoft. Sure in the short term it is Yahoo's only option to even have a viable search program; plus, combined with Microsoft who gets a huge boost in search traffic, it actuallyt creates a reasonable competitor to Google. However, this market is driven by technology and the latest improvements to search, now Yahoo removes itself from the game probably forever.
P.S. Copy of Microsoft's Steve Ballmer email below. BTW - further backing up my post above, Steve wrote
We will get the resources and scale we need to compete effectively in search and to continue to drive new innovation for customers and advertisers, while Yahoo will increase their focus and investment on their online consumer experiences and other business priorities.
Even Microsoft isn't sure what Yahoo gets out of the deal
From: Steve Ballmer [mailto:Steve.Ballmer@microsoft.com]
Sent: Wednesday, July 29, 2009 7:30 AM
To: Microsoft - All Employees (QBDG)
Subject: Announcing a partnership with Yahoo! to expand search innovation and competition
As you’ve heard me say many times, search is a critical business for us. We took a major step forward two months ago, when we announced Bing. Already, Bing has generated huge buzz, great reviews, and early usage figures ahead of our expectations.
Today we’re taking another important step in redefining search and search advertising. Later this morning, I’ll be announcing a partnership with Yahoo in a conference call with Yahoo’s CEO Carol Bartz.
This deal is a win-win for Microsoft and Yahoo. We will get the resources and scale we need to compete effectively in search and to continue to drive new innovation for customers and advertisers, while Yahoo will increase their focus and investment on their online consumer experiences and other business priorities.
As part of the deal, Bing will become the search and search advertising platform for all Yahoo properties, and we will acquire the rights to Yahoo’s search engine and advertising platform technology. The combination of Bing and Yahoo’s scale and technology will accelerate the improvement of search – we’ll be able to add new features and improve the relevancy of search results more quickly than ever. And with expanded scale, we’ll be able to offer advertisers greater return on their investment.
There will be tremendous efficiency gains for both companies. Microsoft will assume responsibility for constantly improving search and search advertising technology on behalf of both companies. We see so much opportunity improve search on behalf of our customers – to make search more relevant and more useful to consumers, and more than just a list of blue links. Yahoo will assume responsibility for search advertising sales to certain premium customers on behalf of both companies. Given the huge opportunities in search and online advertising, we plan to redeploy most if not all affected employees into new high-priority functions.
Given the importance of the search marketplace, this proposed agreement will of course require careful review by regulators, which will take some time, but we believe it will strengthen competition and choice.
It’s been a long road to today’s announcement, but I’m extremely happy with where we ended up. This agreement will help bring choice and transparency back to consumers, advertisers and publishers. It will accelerate our efforts to restore competition to the search market currently dominated by one company. And it’s a huge validation of our strategy to redefine search, and all the great work the Bing and adCenter teams are doing. This deal will accelerate our efforts toward long-term success in search and search advertising.
You can learn more at a joint website we’ve established, which provides a summary of the deal and the advantages it will provide for consumers, advertisers and publishers.