Commentary

Microhoo Deal Could Shortchange Consumers, Marketers

Microsoft has wanted to gain a larger presence in the search market for years. Now it looks like the company has done so, assuming its proposed deal with Yahoo is cleared by regulators.

The pact, announced this week, calls for Microsoft to power search for Yahoo while Yahoo will sell search ads for Microsoft. Together, Microsoft-Yahoo could account for almost one-third of the search market -- assuming Google continues to account for around 65%.

Some marketers have predicted this deal will benefit them, on the theory that Yahoo and Microsoft together will pose more of a threat to Google than either company separately. But no one has articulated a convincing reason for why a Yahoo-Microsoft combo will draw more searchers than each company does separately.

While the deal could make it easier to manage campaigns -- advertisers will only have to make buys on two major search engines instead of three -- it's not clear that any extra efficiency will translate to lower ad prices. Ads are already sold at auction, which limits the ability of Google -- or any other search engine -- to set prices.

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In fact, in some ways this deal could be worse for competition than the Google-Yahoo arrangement shot down last year. That doomed pact called for Google to power some portion of paid search ads for Yahoo, but Yahoo would have continued to develop its algorithms for organic search results.

Additionally, the Microsoft-Yahoo arrangement could leave some Web sites that depend on organic traffic in a precarious position. Currently, if a company falls out of Google's organic results -- as famously happened with KinderStart -- the company still can reach a significant numbers of searchers through Microsoft and Yahoo. But in the future, there will only be one other realistic alternative: Bing.

For Web users as well, search engines serve as a gateway. It's hard to see how consumers will benefit by having fewer options to access information online.

2 comments about "Microhoo Deal Could Shortchange Consumers, Marketers".
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  1. Paula Lynn from Who Else Unlimited, July 30, 2009 at 4:35 p.m.

    Why do people and companies want to "kill" Google? What is wrong with having differences and competition? Search providers can take a lot more pressure off of themselves and probably concentrate better on what they do if they do what they have targeted for themselves and accomplish their goals if they compete rather than focus on destruction. Google will be doing what Google does.

  2. Paul Marcum from GenMouse, Inc, July 30, 2009 at 5:32 p.m.

    Wendy,
    I think there are a few areas here that could be explored further:
    1. You're forgetting that even combined Yahoo! & Microsoft search share is declining in the face of Google's growth (alleyinsider.com has the chart). It's quite possible that within in the next couple of years the combined share will equal that of Yahoo's today. Which leads me to...
    2. You've really glossed over the operational impact of making buys against multiple search engines - there absolutely is an overhead cost for every ad buy, particularly for small businesses, that can't be ignored. If you can reach 65% of searchers across all demographic segments by buying Google, you're going to need some very convincing metrics to spend the time booking buys against ~10%(bing), ~20%(Y) or even ~30% (MicroHoo) - particularly if their demos skew in a certain direction. While certainly the metrics can be compelling - some of Y!s largest advertisers are arbitrageurs who buy traffic for less than it can monetized with Google - it's largely only the sophisticated buyers of significant volume (such as arbitrageurs) who take the time to make it work.
    3. Finally, while Yahoo! gave up this is hardly the end of innovation and competition in search. Instead of Coke and a couple of RC Colas we'll now have Coke and Pepsi but that won't prevent a whole slew of Red Bulls and Monsters popping up to challenge them - monetized intent is just too lucrative a category. Frankly I would be more worried about consumer options had Google or Microsoft bought Twitter...

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