With Microsoft search deal Yahoo risks becoming AOL

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.

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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, Browser, Microsoft

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24 comments
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  • AOL's decline not due to outsourcing search...

    I understand the comparison, but AOL's decline was not due to outsourcing search to Google. It declined because it was too slow in migrating to broadband and because it kept charging (for too long) what other properties (like Yahoo) were giving away for free. AOL is what brought me to the internet in the first place, back in the early 1990s, but I rarely use it now, not even their email. Unfortunately for AOL, it's kind of stigmatized now as an internet dinosaur.

    With all that said, I do agree that Yahoo is likely to become like AOL over the next decade--an internet relic that's past its prime.
    empirestatebuddy
    • I'll add to that...

      They also totally screwed up by buying up companies that were #1 or close to it at the time, and then doing absolutely NOTHING with them. Nullsoft, netscape, etc. all come to mind.
      Yensi717
  • Prelude to a buyout

    This deal makes more sense than a $47B buyout. It will
    allow both companies to test the waters on how well
    each executes with their separate responsibilities.
    It's reasonable to think execution will be sufficient
    to grab 10% market share from Google in the next two
    years. If the DoJ eventually comes down on Google,
    then it will be almost a certainty that the
    partnership could lead to a 20% market grab over five
    years, at which point M$ would hold approaching 50%
    market share. In the meantime, M$ can decide if a full
    hookup with Yahoo or Facebook makes more sense.
    Personally, I would look for a Facebook purchase next.
    jjworleyeoe
    • *groan*

      Please don't imply that Microsoft is looking at Facebook. I'm SO tired of Yahoo-Microsoft-Google-Apple Inc. The BS of cloud micro-managing your choice of computing device is bad enough.
      Joey1058
  • RE: With Microsoft search deal Yahoo risks becoming AOL

    Wow! Finally Microsoft has reached a deal Yahoo for an
    internet search partnership. Will the newly announced
    deal between giants Microsoft and Yahoo be a good
    thing? Got to wait and see. But atleast Microsoft and
    Yahoo deal is straightforward and not complex at all
    and ofcourse, the negotiation talks have been going
    for long. I was just curious to know all the past
    negotiations between Microsoft and Yahoo so collected
    all the articles and links (more than 200) related to
    the current merger and the previous events or
    negotiations between Microsoft and Yahoo. If you are
    interested check the link below.
    http://markthispage.blogspot.com/2009/07/saga-of-
    microsoft-and-yahoo-from-2007.html
    kotla_sr@...
  • But you left out AOL's major income generator

    They were an [b]Internet Service Provider[/b], Yahoo never was.

    AOL's revenue came from monthly subscription to that content, content that was there for no other reason then to get people to sign up with AOL. Add to that advertisers paying for ad space on the site, and AOL was a money maker

    Once broadband internet access was available from cable and phone companies, there really was no need for AOL, as content was available right from the sources. As subscribers dropped, so did the ad revenue they collected.

    GuidingLight
  • Yahoo sold their soul to Satan.

    .
    xXSpeedzXx
    • LOL - boy your sad...lol

      nt
      TheBottomLineIsAllThatMatters
      • LOL - boy his sad what?

        If you are gonna make disparaging comments, at least use your spell
        checker. You're more liable to not come off as an idiot.
        SpiritusInMachina
  • Re: With Microsoft search deal Yahoo risks becoming AOL

    Yahoo is shifting in the right direction.
    gustown
  • Just Remember Apple

    Remember back in the late 90' when Microsoft invested money in Apple, it did pay off. Apple has become one of the greatest technology companies thanks to that investment.

    The same could happen to Yahoo if they press hard in their core business, and invest their money wisely, and MSFT in getting a bigger market share, they saved a "boatload" of cash and are moving ahead with thier game.

    I think is good for both companies and the industry as a whole.
    gustown
    • Except...

      That investment (nice spin by MS PR) was a pay off for MS stealing IP from Apple.

      Not to say the "investment" hurt Apple.
      Bruizer
      • Speaking of "Spin" (nt)

        ;)
        John Zern
        • In what way was that spin?

          Please enlighten me. Seriously, get your facts straight.
          SpiritusInMachina
    • Perhaps YOU should remember Apple

      Said investment had NOTHING to do with Apple's current position. The
      money was a one time LEGAL settlement for an ongoing case where MS
      was caught red-handed stealing thousands of lines of code.
      The amount was $150M
      Apple had 4 BILLION in cash at the time. The money was irrelevant, and
      did nothing to help Apple, other than eliminate what Jobs, in returning to
      the company, thought was a distraction.
      SpiritusInMachina
  • RE: With Microsoft search deal Yahoo risks becoming AOL

    I don't get it from Microsoft's perspective. Isn't Bing kind of competing with Yahoo as well as Google. I would understand if Bing didn't exist, but now it does.
    step69
    • What is so hard to understand

      Bing was competing against Yahoo search. They just basically subsumed
      Yahoo search. Now they are no longer competing against Yahoo search,
      and have all their market share. What part are you not getting?
      SpiritusInMachina
      • RE:What is so hard to understand ?

        DeusExMachina:
        MS just created an advanced search/"decision" engine that would be a major blow to an already reeling Yahoo. They spent many man hours & company money on R&D to create Bing. Why would they do that if they were just going join forces with a competitor? Why don't you understand that is a complete waste of time & $money on Microsoft's part?
        step69
        • I get it

          Yahoo is a known name. Bing is not to the average
          person. This was very smart on m$ part
          davidhite
        • Sigh

          "MS just created an advanced search/"decision" engine that would be a
          major blow to an already reeling Yahoo."

          Um, MS created Bing to get search market share from anywhere they
          could. It makes little difference to MS if that comes from Y! or Google.

          "They spent many man hours & company money on R&D to create
          Bing."

          Which is actually VERY funny.

          "Why would they do that if they were just going join forces with a
          competitor?"

          First, because they could not predict the deal in advance, second,
          because with the opportunity available, they can actually MAke money
          by subsuming Y!, thus immediately getting Y!'s market share and
          QUINTUPLING their own. Why would they pass up the opportunity just
          because they have Bing?

          That's like you turning down the Publisher's Clearinghouse team
          because you just spend a lot of time and effort printing 100 copies of
          your resum?.

          "Why don't you understand that is a complete waste of time & $money
          on Microsoft's part?"

          Why don't you understand that quintupling your market share for zero
          cost is NOT a waste of time (nor, obviously, money.)
          Why, too, do you not understand that MS will continue to use Bing, so
          the money they invested is not wasted. It is just now being deployed to
          5X THE MARKET!!!
          SpiritusInMachina