• Silicon Alley Insider, Monday, April 27, 2009 11:30 AM

A source who is "very familiar with Yahoo's advertising business" gives Silicon Alley Insider four reasons why Yahoo must not sell its search business to Microsoft. First and foremost, the source claims that the number of agencies wanting a one-stop shop for search and display advertising is growing, and that by next year, nearly 70% of buyers will prefer taking their business to Web giants like Google that offer this convergence.

If Yahoo sells search to Microsoft, then Google would also be the only major Web company to sell both forms of advertising. This would drastically damage Yahoo's display business, the source points out, as about 25% of Yahoo's display revenues come from behavioral targeting, which doesn't work as well if Yahoo doesn't have search data to help it construct audience segments. Selling search would also make it much tougher for Yahoo to recruit top engineers and sales people, lessening its chances of competing with Google.

Of course, these claims sound like a laundry list of demands Yahoo could make before it commits to any deal with Microsoft, SAI's Nicholas Carlson points out. Specifically, Yahoo should demand that it be able to feed display advertising buyers into the search buying process without any help from Microsoft. It should also guarantee access to all search activity on both Microsoft and Yahoo's search engines, and, "for good measure," Carlson says, Yahoo ought to throw in the ability to track how users interact with Microsoft's Web properties, including ads.

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