The link-up between Microsoft and Yahoo has been a long time coming. The 10-year agreement, which was first announced last summer but only recently approved, has been an arduous process, which started when Microsoft failed in its attempt to buy Yahoo for $44 billion two years ago.
Investigation by the European Commission showed that the deal was expected to "increase competition in internet search and search advertising by allowing Microsoft to become a stronger competitor to Google." Microsoft is similarly bullish, saying the agreement will provide the scale necessary to compete with Google whilst attracting more users and advertisers.
It will be interesting to see what impact this added competition from Microsoft and Yahoo will have. Certainly, the announcement is crucial for the industry, because it offers agencies and companies using search as a consolidated platform to work from. However, there are still a number of factors to consider.
Firstly, the impact of the agreement isn't likely to be immediate. As it stands, running global campaigns on Yahoo is challenging, as agencies are required to deal directly with the local Yahoo groups and consequently manage several isolated accounts. All dealings with Microsoft's ad center are conducted through one centralized management platform. Merging these management approaches will take time -- it could easily take up to two years to fully implement the technology and business relationship as a coherent strategy.
One must also consider that although Microsoft's interface -- which Yahoo will adopt in the aftermath of the deal -- is much better than Yahoo's, it is still a long way behind Google's offering. Nevertheless, this move will make life easier for agencies. By moving from managing campaigns in three interfaces to two, we can create more time to understand the Microsoft interface.
An interesting aspect to the agreement is how well Microsoft and Yahoo will combine their respective selling points. Traditionally, Microsoft has converted click-through at a much higher rate, but is hindered by its inability to achieve significant traffic. The quality of traffic on Yahoo is somewhat unpredictable, so it will certainly be interesting to see how this combined demographic will work. In an ideal world the industry would keep Bing's conversion rates with Yahoo's traffic. Here's hoping at least.
Whether the Microsoft/Yahoo link-up will provide serious and lasting competition to Google's dominance will depend largely on how easy it is for the industry to use. For brands, this link-up represents an ultimately more cost-effective opportunity to engage with consumers through paid search via Yahoo and Microsoft's sites than previously existed. If Microhoo's platform is accessible and actually facilitates campaigns, then advertisers will be far more inclined to use it, thus increasing the joint entity's revenue stream.
Consumers are certain to benefit from the deal. It will undoubtedly provide stronger competition for Google and will give improved search results. The partnership is such that Microsoft will provide Yahoo with the same search result listings available through Bing, combining that with Yahoo's search expertise. This will offer enhanced listings with organized information about key topics and tools to tailor the experience for Yahoo users.
The bottom line is, however, that the deal will see Microsoft and Yahoo become a much bigger threat to Google's market share. Competition is a strong driver, so this announcement may well have an impact on pricing levels as Google and Yahoo fight over search budgets. It could potentially cause a war over where advertisers put their money.
Rob Pierre is managing director of Jellyfish.
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