On Wednesday July 29th, 2009 Microsoft and Yahoo! announced a long-anticipated search partnership. This 10-year partnership will have significant impact to the overall search landscape as it is known today. While many of the details have yet to be formally released, one thing is clear: Yahoo! is getting out of the search business and Yahoo! CEO, Carol Bartz, could not be happier. Bartz made it clear in the past that Yahoo! is more than just a search engine and now she has the opportunity to prove it. This document outlines the anticipated changes caused by the deal, the potential impact to advertisers, and Rosetta's viewpoint.
What is changing?
Microsoft's Bing will be the provider of paid and organic search listings for both Microsoft and Yahoo! properties. This gives the combined Microsoft/Yahoo 28.4% market share of search vs. 65% for Google (Source: comScore). Yahoo! will continue to own the "search experience" of the user on Yahoo.com as well as its other owned and operated sites. However, over time major changes will occur behind the scenes when Bing's organic and paid search algorithms become the primary drivers for Yahoo's properties.
Timeline for changes
Regulatory review is tentatively scheduled for early 2010
Anti-trust lawsuits or other legal hurdles may occur at any point and could delay this deal
Full technology integration is expected to take 24 months following regulatory approval
The term of the agreement is 10 years
Until the deal is approved and the technology can be integrated there will be no internal or external changes that will occur
What does this mean?
This change will consolidate search platforms, and provide a "better solution" for advertisers to target consumers via paid search. It will specifically provide advantages in these ways:
Consolidation of reporting and budget management
Consolidation of Keyword/Ad Copy lists/maintenance
Access to an expanded user base if a current Microsoft or Yahoo account is not currently in place
Improvements in targeting capabilities, specifically on Yahoo, through additional match types, day-parting, demographic
targeting, and reporting functionality
In regards to customer service and sales, Yahoo will be managing the sales/service arm for the combined search platforms
However, not everyone believes this will be a good thing for advertisers and consumers alike. Searchenginenews.com, a long-time trusted partner of Rosetta, noted the following: "Will this partnership really be a good thing for advertisers and consumers? It doesn't look good so far. This soon-to-be search merger, disguised as a partnership, will only limit options for consumers and advertisers. Google, Bing and Yahoo! have extremely different search results because they have three very different algorithms. So, taking Yahoo out of the equation forces consumers to choose between just two of the world's largest tech giants. Advertisers will have fewer options, which means it may cost more to incorporate paid search into your campaign."
What is Rosetta's position on this agreement?
Rosetta remains optimistic about the change for several reasons:
Yahoo!'s platform has significantly lagged behind all other search platforms, even with the launch of Panama in 2007. This
agreement will give Yahoo! a technology, reporting, and optimization facelift that is long overdue.
We believe that this will bring improved search innovation to the marketplace. By putting some much-needed pressure on
Google, and allowing Microsoft/Yahoo! to better leverage/target its combined user base, we expect targeting and optimization
options to increase dramatically.
Recent paid search results for Microsoft's Bing have been positive for a majority of our clients across industry verticals. We
have seen an increase in volume and conversions from Microsoft since Bing was released. If this conversion increase can be
translated to the Yahoo! user base it will mean improved ROI numbers across the board, along with substantial volume.
Advertisers can no longer afford to ignore Bing's organic search results. While Google remains the 800 pound gorilla, SEO
efforts must include a concerted focus on Bing's algorithmic preferences. However, Google is still the leader in the space in
terms of market share, optimization tactics, and efficiency tools available to advertisers. So the combination of
Microsoft/Yahoo! will only be one step in improving the search offering for both consumers and advertisers.
Questions still to be answered
Q: What impact will this have on competition and cost-per-click (CPC)?
Currently many advertisers avoid Microsoft/Yahoo due to the additional effort and lower search volume available. This deal will address both of those concerns, and will most likely increase the number of advertisers participating - therefore increasing CPC.
Q: What will this mean for distribution deals?
Google has two of the biggest distribution deals today with AOL and Ask.com. With this deal the potential bargaining power of the combined units may cause pressure on these deals and lead to opportunity or shifts in the marketplace.
Q: What will happen to the display side of the business for both Microsoft/Yahoo!?
The press release maintains that both companies will manage their display businesses separately. However, search re-targeting, and other targeting opportunities could potentially change significantly (expanding exponentially) with this deal.
APPENDIX
Other details of the agreement
All the official details can be found at www.choicevalueinnovation.com. Here are some of the highlights:
Microsoft will acquire an exclusive 10 year license to Yahoo!'s core search technologies, and Microsoft will have the ability to
integrate Yahoo! search technologies into its existing web search platforms.
Microsoft's Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use
its technology and data in other areas of its business such as enhancing display advertising technology.
Yahoo! will become the exclusive worldwide relationship salesforce for both companies' premium search advertisers. Self-
serve advertising for both companies will be fulfilled by Microsoft's AdCenter platform, and prices for all search ads will
continue to be set by AdCenter's automated auction process.
Each company will maintain its own separate display advertising business and salesforce.
Yahoo! will innovate and "own" the user experience on Yahoo! properties, including the user experience for search, even
though it will be powered by Microsoft technology.
Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!'s network of both
owned and operated (O&O) and affiliate sites.
Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!'s
O&O sites during the first 5 years of the agreement.
Yahoo! will continue to syndicate its existing search affiliate partnerships.
Microsoft will guarantee Yahoo!'s O&O revenue per search (RPS) in each country for the first 18 months following initial
implementation in that country.
At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on
current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP
operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also
estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.
The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to
operate and improve the combined search platform, and restricts the use of search data shared between the companies. The
agreement maintains the industry-leading privacy practices that each company follows today.