Microsoft, Yahoo Face Integration Challenges, Analysts Say

 
 
By Clint Boulton  |  Posted 2010-02-20 Email Print this article Print
 
 
 
 
 
 
 

Microsoft and Yahoo's search deal will give Microsoft's Bing search engine much needed scale versus market giant Google, but integration challenges are a certainty as the companies rationalize assets and partners, say analysts from FBR Capital Markets. Assuming all goes smoothly, Collins Stewart analyst Sandeep Aggarwal said it may take up to three quarters for Microsoft to absorb part of Yahoo's search related operational expenditure and for Yahoo to realize 90 percent or more of the $650 million it expects to save from running its own search engine and search ad platform.

A successful implementation of Microsoft and Yahoo's search deal will give Microsoft's Bing search engine much needed scale versus market giant Google, but integration challenges are a certainty as the companies consolidate technology, advertisers and publishers, analysts say.

Microsoft and Yahoo Feb. 18 received clearance from the U.S. Justice Department and European Commission to commence their 10-year search and search advertising agreement.

The deal calls for Microsoft's Bing search engine and AdCenter platform to power search results and search advertising on Yahoo's search engine, with Yahoo retaining its aesthetics.

Yahoo said it would begin shuttling its algorithmic and paid search platforms to Microsoft. Microsoft will provide Yahoo with the same search result listings it makes available to Bing users. Yahoo will integrate its content and enhanced listings with info about key topics and tools around the Bing listings.

Shashi Sheth, senior vice president of Yahoo search products, described how this would look in a blog post Feb. 18, illustrating how Yahoo's Search Pad, Search Assist and SearchScan search features and relevant content would couch Bing results.

Yet there are a lot of moving pieces between Bing and Yahoo's search engine that must be rationalized, as analysts for FBR Capital Markets wrote in a Feb. 18 research note:

"We believe the challenge now lies in implementing the partnership so that the transition is smooth for customers and partners. Microsoft and Yahoo need the implementation process to proceed smoothly in order to prevent business disruption of their customers and partners... Any glitches could result in customers and partners diverting more of their business to Google."

Microsoft and Yahoo said they expect to complete the transition of algorithmic search in the United States by the end of 2010, with Microsoft migrating Yahoo's U.S. advertisers and publishers to its AdCenter platform prior to the 2010 holiday season.

Microsoft expects to move all Yahoo customers and partners to Bing by 2012, which is also going to be a tremendous challenge.

Assuming all goes smoothly, Collins Stewart analyst Sandeep Aggarwal said it may take up to three quarters for Microsoft to absorb part of Yahoo's search related operational expenditure and for Yahoo to realize 90 percent or more of the $650 million it expects to save from running its own search engine and search ad platform.

Moreover, while Microsoft agreed to pay Yahoo 88 percent of traffic acquisition costs generated on Yahoo's sites during the first five years of the agreement, Aggarwal said Yahoo may not recognize revenues per search from Bing until the first half of 2011.

Still, FBR said the deal was better than Microsoft's alternative of organically growing search market share:

"We believe the deal provides Microsoft with much needed scale, which we believe is better than going it alone and will allow Microsoft to focus on its core strength of developing technology."

Bing's market share has grown from 8 percent to 11.3 percent since its first full month in June 2009. But it would take several years for Bing to challenge Google, whose share is a lofty 65.4 percent in the U.S. and as much as 90 percent in Europe.

Combined with Yahoo's 17 percent market share, Bing would have 28 percent of the search market, making it very respectable if not a certain threat to Google.

 
 
 
 
 
 
 
 
 
 
 

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