Yahoo-Microsoft Deal a Win for Advertisers

Many search advertisers will rejoice at today’s news that the long-anticipated Microsoft-Yahoo search deal is done. The two sides reached a 10-year agreement that has Microsoft becoming the back-end provider for Yahoo Search and Search Advertising, and Yahoo selling search ads for both Yahoo and Microsoft. Self-serve ads will be done via Microsoft’s AdCenter platform.

Microsoft’s adCenter platform is widely considered superior to Yahoo’s Panama, and with enough volume could offer a viable alternative to Google AdWords. Not a Google-killer, mind you, but a credible place to spend search advertising budget in addition to Google.

Under the agreement, Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo sites. Presentation of search on the Yahoo sites will continue to be branded and controlled by Yahoo, with a “Powered by Bing” notation at the bottom of search results.

Yahoo will continue to use its technology and data in other areas of its business, such as enhancing display advertising technology. Microsoft will gain an exclusive license to Yahoo’s search technology, and will be able to incorporate what it likes into Bing. Display advertising for each company will remain separate.

“This deal is about scale,” Yahoo CEO Carol Bartz said on a joint Yahoo-Microsoft conference call this morning. “Together, we can offer a real, viable option for users and advertisers.” Bartz suggested the increased volume will create a better marketplace for advertisers, as well as better deals for publisher partners.

Microsoft CEO Steve Ballmer echoed that idea, adding that the increased volume of searches and ads being served by Microsoft would greatly accelerate the speed of learning from the marketplace, allowing Microsoft to improve its Bing algorithm and adCenter platform faster than it could on its own.

Many search marketers agree that Microsoft’s technology combined with Yahoo’s traffic will make this a good deal for advertisers.

“While Yahoo has always had decent traffic volume, their PPC tools have been sub-par. A clunky interface combined with the lack of an offline editor have resulted in a huge barrier to entry for those wanting to do PPC with Yahoo,” said Melissa Mackey, online marketing manager at Fluency Media. “On the other hand, Microsoft’s PPC tools are extremely robust – more so than even Google’s in many ways. However, the lack of traffic volume has historically meant that relatively few advertisers choose to bother with adCenter.”

Advertisers would be less happy about the deal if it were Yahoo’s technology powering the combined ad marketplace, she said. Besides the technology, the community relations of Microsoft’s team has been superior, according to Mackey.

Brad Geddes, founder of bg Theory, agrees: “If Microsoft had to choose between the Yahoo Search Marketing platform and team or the adCenter platform, it’s a good thing they chose adCenter,” Geddes said. “The issue with adCenter was always volume. It was a great platform, but had so little volume, it was often not worth the time to manage. With the combined search share Microsoft will now command, I have very high hopes for that the adCenter platform and its community will be able to accomplish. If they continue to embrace advertisers like they have, they could be a formidable force and increase advertiser adoption.”

But that doesn’t mean Google should be scared. While the deal definitely creates more of a threat to Google, creating a bigger #2 search engine, The gap between them will still be fairly large. Will a combined Yahoo-Microsoft be able to take share away from Google? That remains to be seen. So far, Bing has been taking share from Yahoo and other smaller search engines.

Besides that, the deal is still a long way from closing. Microsoft and Yahoo will begin submitting it to regulators in the U.S. and Europe as early as next week, but that process is likely to go on for the rest of 2009, at the very least. Once approved, the transition to Bing will take place over the next 3 to 6 months globally, and the transition from Panama to adCenter will take up to 12 months.

All told, the combined Microsoft-Yahoo search engine is likely 2 years away. That’s a long time for things to go wrong, or for Google to step up its game and come out with something to make this deal irrelevant.

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