With Microsoft search deal Yahoo risks becoming AOL

Summary:Yahoo and Microsoft are expected to announce their long overdue search pact to seal an 18 month courtship. While outsourcing search technology to Microsoft makes a lot of short-term financial sense, the strategic impact remains to be seen.

Yahoo and Microsoft are expected to announce their long overdue search pact to seal an 18 month courtship. While outsourcing search technology to Microsoft makes a lot of short-term financial sense, the strategic impact remains to be seen. The biggest question: Has Yahoo just turned into AOL?

The details of the deal go like this:

  • The deal is for 10 years;
  • Microsoft will license Yahoo’s core search technologies for 10 years;
  • Bing is the “exclusive algorithmic search and paid search platform for Yahoo sites’;
  • Yahoo is the worldwide sales force for both companies. Self-serve and search advertising will be built on Microsoft’s AdCenter platform.

Behind the scenes there will be technical issues, a two-year implementation and it's unclear what happens to Yahoo projects like BOSS and even delicious. On the surface, Microsoft CEO Steve Ballmer and his counterpart Carol Bartz at Yahoo each get what they craved. Bartz gets to keep Yahoo's ad sales and the customer relationship. Microsoft lands a big AdCenter and Bing search customers and finally gets its 30 percent in search market share. It's a win-win---unless owning search technology is important after all.

Also see: It's official: Microsoft-Yahoo ink 10-year search pact

Does Yahoo need to own the underlying search technology? Possibly. The biggest risk to Yahoo is that it becomes AOL, a company that's a gateway to the Web yet a step behind. A company that owns vertical categories such as finance, news and sports, but little else. A company that doesn't own any content. And a company too dependent on third party technology for a big chunk of revenue. AOL's search fortunes are hitched to Google. Yahoo's search bounty will be tied to Bing.

Yahoo won't be like AOL you say? Let's ponder the AOL-Yahoo comparisons:

The content: AOL is basically a content company. So is Yahoo. Both aggregate big audiences. The difference: AOL is better at the skunkworks approach to content and has been launching a bevy of properties. And, oh yeah, AOL owns content sites like Engadget.

Is there much difference between this...

And this?

Even the Dove ads are the same.

Neither quite gets that social networking thing. Yahoo and AOL have launched various attempts to be more social. Yahoo launched and killed 360. AOL overpaid for Bebo and now isn't quite sure what to do with it. As a result, both companies have worked to integrate popular services such as Facebook and Twitter to keep you coming to their respective landing pages.

Yet both are dominant in email and IM. While AOL and Yahoo aren't exactly social networking juggernauts, they own email and IM, two forms of communication that are arguably social and will become even more so.

And both are dependent on an outsider for their search mojo. AOL's SEC filings are instructive. Why? Google is listed as a risk factor. Consider:

We do not own or control a general text-based web search service. Instead, Google is, except in certain limited circumstances, the exclusive web search provider for AOL Media.  In 2008, search advertising revenues comprised approximately one-third of our total advertising revenues and was the only category of our advertising revenues that grew year-over-year.  Changes that Google has made and may unilaterally make in the future to its search service or advertising network, including changes in pricing, algorithms or advertising relationships, could adversely affect our advertising revenues.

Because we do not own or control such a search service, we are not able to package and sell search advertising along with display advertising services outside of AOL Media.  As search advertising represents a significant portion of online advertising spending, we believe that our lack of a proprietary search service could adversely affect our ability to maintain and increase advertising revenues.

Guess what Yahoo's SEC filings are going to look like? You got it. AOL's. If you swap Google for Microsoft you have nailed Yahoo's strategic list going forward. Yahoo will be dependent on Microsoft for search advances. The good news appears to be that Yahoo will control its search sales destiny. The bad news is that Yahoo won't control its search algorithm destiny.

Perhaps Yahoo won't become AOL, but with the Microsoft search deal the similarities are becoming striking.

Topics: Social Enterprise, Enterprise Software, Microsoft


Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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