I’ve received a lot of e-mails today from people asking me my opinion about the Yahoo MSN partnership announced today. As I see it there are two consequences of the deal: first, I am confident that the partnership will have little to no impact on the market share of either of these two companies when it comes to search. Google is the de facto search engine, and consumers aren’t going to switch to something else just because there may be a slightly better algorithm on another site (and frankly I don’t think Bing or Yahoo has a better algorithm as it is).
So I expect Google’s market share to continue to increase in the coming years. Nothing Yahoo and MSN did today from a technology integration perspective is going to change that. The second point, however, is that I do expect Yahoo and MSN revenue from paid search to increase as a result of this deal. Why? Because the combination of two small paid search players, with two different but equally annoying platforms, will make it much more palpable for search marketers to allocate time and resources to running on these engines. There will be more clicks available from one source and we will only have to deal with one bad user interface and not two. The difference between spending $10,000 on Yahoo and $10,000 on MSN, versus spending $20,000 on one place is huge, so much so that I suspect that advertisers will be willing to increase their overall spent on these search engines.
The stock market reacted to today’s news by cutting Yahoo’s share price by about 10%. The rationale for this drop in price was that Yahoo CEO Carol Bartz did not get any upfront payments from Microsoft. I actually think this is silly reasoning by the investment community. First, as noted, I believe this is a long-term revenue driver for Yahoo, for the reasons stated above. But second, this enables Yahoo to focus on a part of their business that is still a significant differentiator compared to Google. Specifically, I am talking about content creation and development. Yahoo has great content like Yahoo sports and Rivals.com. And channels like Yahoo news and Yahoo finance, which have recently seen pressure from Google alternatives, could use a few bodies and some resources that had probably been dedicated to paid search over the last few years.
So if Yahoo can focus the company on building great content, eliminate unnecessary staff and basically outsource paid search management to MSN, all the while increasing their monetization of their search results, I see this as a great deal for Yahoo. Over time, if the content is really great, there’s a great chance to also increase market share in search, simply because people will start to use embedded search functionality on Yahoo’s content pages.
For Microsoft, on the other hand, I’m more ambivalent. I do think that this will grow their revenue from paid search, just like it will grow Yahoo’s revenue from paid search. But if the folks in Redmond think that this deal will be a big driver for Bing, as a significant competitor to Google in organic search, I think they are mistaken. There is nothing that MSN can do at this point to win the search battle. It seems to me that the announcement today signifies that Yahoo understands this reality, and Microsoft is still living in the 1990s, a time in which any category they chose to conquer was theirs for the taking.