Microsoft's unsolicited bid to could be the mother of all interactive mega-deals, dwarfing any combination of Google/DoubleClick, AOL/Tacoda, News Corp./MySpace and Microsoft's own aQuantive buy. But if you want a consensus on what the deal means, you'll have to look elsewhere.
While the bid has a long way to go before it becomes a deal (Yahoo would have to accept and federal regulators would have to bless the new company), the idea of a united Microsoft/Yahoo has sent interactive pundits into overdrive.
Got to beat Google
With its roots as a software maker, few people outside of interactive think of Microsoft as an advertising company. But Microsoft, which vowed late last year to become one of the top players in the industry within the next few years, could do just that with Yahoo guarding its flank. Maybe.
While the deal seems to make mathematical sense -- two giants joining forces to beat a bigger giant named Google -- such a realignment of power in the industry certainly raises a few eyebrows.
"There are so many unanswered questions right now," says Sean Cheyney, VP of marketing and business development at AccuQuote. "Although it makes sense for both businesses in terms of future growth, it's like the blind leading the blind. Each of the two companies continues to grasp at straws in their quest to 'out-Google' Google, without having a defined core."
According to Cheyney, a combined Yahoo and Microsoft, especially with the integration of aQuantive, could be a "great marriage." But that marriage will need a well-defined core business, something that remains unclear at this early stage.
Beyond beating Google in the general sense, the question comes down to one of search versus display. And here opinions are mixed.
Sarah Pate, president and CEO of AdMission, sees display as the driving force behind Microsoft's bid.
"This is a pure advertising play," Pate explains. "It not only creates scale to rival Google for consumer reach but leverages the recent acquisition of both companies to monetize the fastest growing segment of online advertising: display. With search capped out in terms of category growth, critical mass in garnering the lion's share of display ad dollars is incredibly compelling."
As the leader of a display ad firm, Pate's take on the bid meshes with her own business model. However, recent numbers from comScore buttress Pate's analysis.
With 19 percent of the display advertising market, Yahoo is the industry leader, edging out News Corp.'s Fox Interactive Media, which tallies 16 percent of the sector. Microsoft, by comparison, is a distant third, with only 6 percent of the display market. But a combination of Microsoft and Yahoo would give one company a quarter of all display advertising in a fast-growing field that Google hasn't been able to penetrate. To date, Google has only a 1 percent share of the display market.
What about search?
While Google has been -- and continues to be -- the industry's search leader, Microsoft's bid for Yahoo isn't without a search component, according to Noah Elkin, VP at iCrossing.
"Microsoft's bid demonstrates the high value of search to all digital marketing," Elkin says.
That's a sentiment shared by Tom Hespos, president of Underscore Marketing, who says, "Microsoft stands to gain significantly by moving closer to Google with respect to search revenue.
But Bill Tancer, general manager of global research at Hitwise, disagrees with Hespos and Elkin, arguing that the deal would have a "limited impact on Google's continued dominance of search."
To illustrate his point, Tancer compares a Yahoo/Microsoft combination with Google. From a pure search perspective, Google still out paces both Microsoft and Yahoo with nearly 66 percent of the total U.S. market. In contrast, Yahoo and Microsoft combined would only reach 27.8 percent of the U.S. search market.
But for Tancer, the bid could be as simple as a digital land grab. Combining Microsoft and Yahoo properties, Tancer points out that the two internet giants would own about 15 percent of all internet visits, compared to just 7 percent for Google.
What's in it for advertisers?
Acquisitions aren't anything new for interactive, and the growing dollar signs continue to dazzle the eye and boggle the mind. But when Microsoft talks about a $44 billion deal, it's hard to miss one industry-wide implication -- digital has arrived.
Jonathan Heller, a former DoubleClick executive and co-founder of Freewheel, a firm that provides technology for video syndication, says the message in all of this is that the internet has finally scaled.
"As the web continues to gain ground on the other advertising mediums like TV, and if a Microsoft/Yahoo deal can speed up effective scale for advertisers and really hold to the open ecosystem philosophy they've espoused, that could help most everyone." Heller says.
But the bid isn't great news for all advertisers. Cheyney expressed fears that Microsoft could make Yahoo a less attractive place for AccuQuote to advertise.
"From an advertiser perspective, I'm concerned that Microsoft will tinker with what already works for me as an advertiser with Yahoo," Cheyney says. "I'm hopeful that Microsoft will take a look at both systems and come up with a best-of-breed compelling offering to advertisers. Doing so will likely result in a shift in ad dollars in their direction."
While it's hard to know what Microsoft will do with ad solutions already favored by some in the industry, eMarketer's Kris Oser says everyone should watch management for clues.
"One key indicator will be who is in charge [assuming the offer is accepted]," Oser says. "When AOL purchased Tacoda, it put Tacoda executives such as CEO Dave Morgan in the lead for AOL advertising. Similarly, if Microsoft makes Yahoo executives the key players in the new division, that will say more about intent than if Microsoft just subsumes Yahoo."
The bid also signaled an alarm bell for Traffiq CEO Mark Kahn, who says he's concerned that consolidation at the top could push out the web's smaller players.
"The acquisition of Yahoo by Microsoft will most certainly extend Microsoft's consumer audience but might drive advertising costs to where they could become cost prohibitive for small and mid-sized businesses," Kahn says. "Smaller advertisers and publishers who rely on the internet as a cost effective medium to promote and sustain their business could be the first to feel the effect of the Microsoft/Yahoo deal, should advertising costs increase."
The "if" of integration
While opinion varies on whether the offer will be accepted, what the real play is and what it will mean for interactive, one point virtually all industry-watchers can agree on is that integration will be the big hurdle.
Without getting into details, Microsoft CEO Steve Ballmer insisted that his team had worked out a strategy for bringing Yahoo into the fold.
Integration is critical, according to T.J. Kelly of ActiveAthlete, who says buyers will only benefit if Microsoft can seamlessly align sales and technology between the two companies.
But integration could mean more than simply combining two sales teams and aligning different technologies, according to Hespos.
"The cultural differences between these two companies ought not to be overlooked," Hespos points out. "I would see that as a significant hurdle to integration."
Assuming Yahoo accepts Microsoft's offer (and a lot of people think there's a significant "if" there), the industry will be faced with what appears to be a $44 billion divide.
On one side of the equation there will be the elite players like Microsoft and Google playing a reach game, Kelly says.
The reach game will boil down to a battle of search versus display, with Google dominating the former and a Microsoft/Yahoo hybrid becoming the premiere player in the latter area.
But for those like ActiveAthlete that are shut out of the reach game, the answer will have to be found in finding depth for advertisers.
"These are interesting times in the interactive space and there seems to be two paths forming, reach from the big three -- Google, Microsoft/Yahoo and AOL -- and more targeted reach from vertical networks," Kelly says.
Michael Estrin is associate editor at iMediaConnection. .