by Shane O'Neill

Microsoft/Yahoo Deal: Is It Too Soon?

Jul 20, 20093 mins
Data Center

Microsoft and Yahoo may soon close a search deal, but this puts too much pressure too soon on Bing.

On Friday, reports of a possible search and online advertising deal between Microsoft and Yahoo dropped in like an old friend. Here we go again. But could this finally be it?

It’s been confirmed that Microsoft execs were down in Silicon Valley late last week to talk details with Yahoo, but neither company is commenting publicly on a deal.

If a deal does go through, Microhoo, for lack of a better word, could be an effective weapon against Google search. But some things have changed since these two frenemies last negotiated. Bing came along and complicated matters.

Microsoft’s “decision” engine debuted strongly to good reviews, a $100 million ad campaign and a slight bump in market share (from 8 to 8.4 percent) in June, Bing’s opening month. Google’s market share stayed the same at 65 percent, according to comScore’s June search rankings. Strangely enough, it was Yahoo that lost search market share, dropping slightly from 20.1 percent to 19.6 percent in June.

Nevertheless, one has to wonder if the fledgling Bing is getting by on marketing juice right now and will wane once the novelty wears off. Maybe, but maybe not. Wouldn’t Microsoft be better off waiting to see if Bing is more than a hot flash before making one of its most significant deals/mergers/acquisitions? In a few months Bing could be stronger and Yahoo could be weaker … and cheaper.

A search deal would give Yahoo a huge influx of cash and massive cost savings from not having to run its own search engine. Microsoft will get access to more search data and help in building momentum for Bing. If you combine the search share of both companies you have nearly 30 percent of the search market — not a bad jumping off point for Bing, but will Bing be able to carry that weight?

A story posted on 24/7 Wall Street about the alleged Microhoo deal cites sources at a major client of investment firm ThinkEquity that called the deal “imminent” and disclosed a few details about the terms of a possible deal between the two companies.

Mind you these are anonymous sources, but the story speculates that “under the terms of the arrangement, Yahoo will be paid $3 billion upfront and will get 110 percent of the revenue that its searches provide after traffic acquisition costs in each of the first two years. In the third year, that figure would go to 90 percent.”

Combining the technologies and brands will be complex, but it’ll be worth it. Microsoft and Yahoo do need each other and a merger of some sort, if they can integrate quickly and efficiently, could be a real competitor to Google, whose lead in the search space has been as vast as the Grand Canyon for a long time.

Something’s got to give, but I figured Microsoft would wait for Bing to mature and thrive first, as the Bing brand will almost quadruple in importance (based on market share numbers) if a deal with Yahoo goes down.

Of course, the whole deal could fall apart — like it has many times over the past two years — but this one feels close enough that you can almost taste it. And to me, it tastes undercooked.

What do you think?

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