Yahoo & Microsoft Have Talked Partnering, Merging

I was talking with Kevin Delaney of the Wall Street Journal on Monday about search things in general and mentioned the sense it makes for Microsoft and Yahoo to get together. Microsoft is behind with the core search technology. Yahoo's been struggling to upgrade its paid search service. Let's get these two kids together! And today in the Wall Street Journal, it turns out that there's apparently a faction at Microsoft that wants to do just that.

Via Paid Content, A Microsoft, Yahoo Tie-Up? from the Wall Street Journal has the details. Kevin and colleague Robert Guth write of there being two factions within Microsoft -- the "let's built it ourselves" group that has been in control so far and the "let's acquire" group apparently led by Microsoft senior vice president Hank Vigil.

Vigil is said to have led the failed negotiations to combine MSN with AOL. Frankly, a Yahoo deal makes more sense than that. AOL would have provided existing traffic but not solid search technology. Yahoo provides plenty of traffic, along with core search technology and a healthy, first-hand advertiser base.

What's not to love? Probably the high price of the acquisition, plus whether Yahoo -- especially cofounder Jerry Yang -- would go for it. But apparently it's plausible enough that both companies have talked informally over the past year.

The Wall Street Journal cites the hiring of Steve Berkowitz by Microsoft as perhaps being a tipping point. I'd certainly agree. Steve is the first serious outside person Microsoft has brought in for its battle in the search wars. Bringing him on was a big sign that what Microsoft has been trying to do internally hasn't been working -- and so something radical such as an Ask or Yahoo acquisition might be in order.

The big downside is that such an acquisition would give Microsoft yet another brand to confuse consumers with. After spending hundreds of millions of dollars over the years to push MSN, they've now shifted things behind making the stupid Windows Live brand their flagship. It's stupid for so many reasons. Let me bullet point two major ones:

  • Most people I know don't really like the Windows brand. Heck, I'm a Windows person, fairly anti-Mac, but Windows still represents crashes and glitches to me. And this is the label you want to attach to your online services?
  • We're moving into a world where the operating system and my web-based services aren't necessarily connected. I love Outlook. I live in Outlook. But online, I might want to sync Outlook with Yahoo or Google's calendar. Forcing me to think -- overtly or indirectly through branding -- that I have to use all your products makes me want to use none of them. Let MSN operate as if it wasn't linked to your operating system or your browser and it will be a stronger service in the long run, not weaker.

So Microsoft's already coping with the confusion of two major brands. Adding in Yahoo further confuses matters, unless they perhaps make a brave, bold move and put everything behind the brand leader in the space, Yahoo.

Meanwhile, via Valleywag, Ballmer defends Microsoft's spending increase from the Seattle Times covers a likely leaked memo from Microsoft CEO Steve Ballmer naming Google as one of the company's chief competitors and requiring further "heavy investments" in search. The goal, which we've heard before, is to create "the web's largest advertising network, giving us an engine that twill enable us to monetize our services and compete against Google."

Ah -- but to compete against Google, you don't need an advertising network. You first need a quality core web search engine, which your heavy investment to date has failed to create. And so back to Yahoo, which has exactly what Microsoft needs, that core technology.

Microsoft's AdCenter May Fail to Topple Google From Dominance from Bloomberg covers how advertisers are getting a more formal look at the MSN adCenter service that Microsoft has rolled out over the past few months. Unlike Microsoft's failure in web search, I'd say adCenter is a big success. The service already has plenty of advertisers using it -- and anecdotally continues to draw lots of praise for its features.

Features ultimately mean little, of course. As the story cites, it's about volume. MSN could have rolled out a terrible product that advertisers would have coped with simply because it was the only way to reach MSN's substantial traffic. But to the company's credit, they did not do that. Instead, they've continued to refine and tweak and take advertiser feedback in a way that has earned them raves I rarely hear recently about the systems at Google or Yahoo. Volume remains key, but the features and wooing still certainly help.

And that brings us back to Yahoo, which has been struggling with an antiquated paid listings toolset. The Counterattack On Google from BusinessWeek covers how Yahoo's "Panama" update to its paid listings system has been progressing over the past two years and is nearing completion. But BusinessWeek correctly summarizes, in my view, the changes are more about bringing Yahoo up to Google's level of features rather than leapfrogging past Google and into features like MSN offers.

It's another argument that makes the idea of Yahoo and Microsoft getting together not wacky at all.

Want to comment or discuss? Visit our Search Engine Watch Forums thread, Yahoo & Microsoft To Combine.