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Just the First Shot

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Unless you've been living in a cave this past week—or at least not reading this blog—you've heard about Microsoft's offer to buy up Yahoo! for $31 a share, for a total of $44.6 billion. John Markoff, of the New York Times, called the moved the “firing the final shot of yesterday's war”—the war in question being one we all know well: the battle for search advertising.

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Nothing could be further from the truth. Buying Yahoo is firing the first futuristic shot in tomorrow's war; Yahoo! is just the beginning for Microsoft. And the war is not for search advertising space alone; even a combined 34.6% for Microsoft/Yahoo! (assuming no one drops off during the merger) doesn't compete with Google's 61% (including its major partners). This deal is about much more.

For one, it is about mobile, one of the last frontiers in which Google's dominance is still tenuous. Google has spent time and made waves developing the Android mobile operating system, but its mobile offerings are relics compared with the new Yahoo! Go 3.0 and Microsoft's recently-acquired TellMe service. It's about emerging ad space, like Facebook—of which Microsoft owns a piece and has a 10-year exclusive advertising deal, beating out a Google bid—and advertising exchanges like Right Media, which was acquired by Yahoo!

Google may have video covered online, as it owns most video streams via its acquisition of YouTube and most video searches via its new integrated search bar and rumors of true frame-by-frame video search being developed. Photos, however, are still fair game, with Yahoo! holding on to more than 2 billion photos via its acquisition of Flickr. Blogging is worth fighting for as well. Blogger.com has been given over to spammers, but Windows Live Spaces and Yahoo! 360 both do well, with 45 million users between the two of them.

Microsoft wants Yahoo! for search, but it recognizes the need to lead in every other emerging online market where advertising dollars can be spent. And that means more acquisitions. And lots more shots fired.


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