Microsoft-Yahoo deal 'best shot' at success

Microsoft and Yahoo's pact may be their "best shot" at succeeding in search market, but they should also look to Asia for growth, say analysts.
Written by Victoria Ho, Contributor

The search deal by Microsoft and Yahoo may be the their "best shot" at success in the search market, according to analyst TBR.

Following Microsoft and Yahoo's announcement of a 10-year search partnership, TBR said in a commentary Thursday the move complements Microsoft's investments in search and online advertising which have seen the rise of products such as Bing, but failed to attract a sizable user base, which is currently at less than 10 percent of searches.

"A lack of search volume is not a trivial problem; it's the fundamental flaw that is preventing any success of positive financial return from the business," it said.

Even with their combined forces, Google's market share stands at around 70 percent.

"While Google's share of the market and hold on consumers is formidable, Microsoft's advertising deal with Yahoo may be [their] best shot at succeeding in the market," TBR said

David Mitchell, Ovum research fellow said in a note Thursday, with Google's dominance of the market, Microsoft and Yahoo should work on making inroads to markets outside the United States and Europe, such as Asia.

He pointed to Baidu's dominance of the Chinese market over Google, and Naver's popularity in South Korea. "Given that the Internet population is growing fastest in Asia, both Google and the combined Yahoo-Microsoft proposition will need to work very hard to make inroads into this highly lucrative market."

Back in February, Mitchell said the possibility of Microsoft buying Yahoo would aid the two in competition with Google's "formidable" advertising business.

TBR said in a report posted at the same time, Yahoo's "ongoing struggles and an uncertain future" would push it to accept Microsoft's offer.

The analyst firm's latest report, however, said Microsoft's deal with Yahoo is a "clear win" for the software giant, because it gets to benefit from Yahoo's search volume without the hefty US$45 billion payout initially offered for Yahoo.

Microsoft would have also faced additional costs integrating Yahoo's business. TBR estimated it would cost between US$500 million to US$1 billion annually.

Editorial standards