Microsoft and Yahoo Join Forces to Challenge Google's Dominance

Strategic Insights -

Microsoft and Yahoo Inc. are collaborating to tilt the balance of power in internet search away from Google Inc. through a proposed 10-year agreement. Under the agreement, Microsoft's Bing search engine would process all search requests and steer search-related ads on Yahoo. This partnership aims to challenge Google's dominance in search, which currently handles 64.7% of all US Web searches.

The proposed partnership is under review by the US Justice Department, which will determine whether the agreement would harm online advertisers and consumers. Analysts believe the move will free Yahoo to phase out of the search business and focus on other products. Yahoo would retain 88% of advertising revenue generated by searches on its site for the first five years and up to 93% in the final five years.

Key Takeaways:

  • Microsoft and Yahoo Inc. have filed paperwork with federal regulators to comply with the Hart-Scott-Rodino Act, an antitrust law governing mergers and alliances between competitors.
  • The 10-year agreement aims to challenge Google's dominance in search, with Microsoft's Bing search engine processing all search requests and steering search-related ads on Yahoo.
  • Yahoo would retain 88% of advertising revenue generated by searches on its site for the first five years and up to 93% in the final five years.
  • The agreement will be reviewed by the US Justice Department, which will determine whether it would harm online advertisers and consumers.
  • Yahoo may need Microsoft to survive, as the company may not be able to afford to keep spending so much money on search while its hold on its audience is threatened by rapidly growing internet hubs.
  • Antitrust regulators generally frown on deals that create duopolies, unless one of the players can show it needs to bow out of a cutthroat competition to stay alive.

Statistics:

  • Google handled 64.7% of all US Web searches in July (comScore Inc).
  • Yahoo processed 19.3% of all US Web searches in July (comScore Inc).
  • Microsoft processed 8.9% of all US Web searches in July (comScore Inc).
  • The Association of National Advertisers (ANA) had opposed the Google-Yahoo deal, but is now supporting the Microsoft-Yahoo agreement.
  • The ANA has over 1,000 members, including big marketers such as Procter & Gamble Co., Johnson & Johnson, and General Motors Corp.

Sources:

  • Yahoo Inc. and Microsoft Corp. file paperwork with federal regulators (The Daily Star, 2009)
  • Microsoft and Yahoo Inc. to challenge Google's dominance (The Daily Star, 2009)
  • ComScore Inc reports on US Web searches (ComScore Inc, July 2009)
  • Association of National Advertisers opposes Google-Yahoo deal (The Daily Star, 2009)
  • Microsoft General Counsel Brad Smith on the need for scale in search advertising (The Daily Star, 2009)
  • Center for Digital Democracy's Jeff Chester on privacy concerns in the Microsoft-Yahoo agreement (The Daily Star, 2009)