Microsoft, Yahoo Offer Roadmap for Search Deal

Microsoft and Yahoo aim to have major aspects of their search-and-advertising deal in place by end-year holidays 2010, according to official blog postings by both companies, including porting Yahoo’s U.S. advertisers and publishers onto Microsoft’s AdCenter platform. 

Under the terms of the companies’ agreement, Bing will power backend search for Yahoo’s online properties, while Yahoo takes over worldwide sales-force duties for both companies’ search advertisers. Microsoft’s AdCenter platform will power search advertising for Yahoo, as well. For the first five years of the deal, Microsoft will pay Yahoo traffic acquisition costs (TACs) at an initial rate of 88 percent of search revenue generated on Yahoo’s sites.

“The Yahoo and Microsoft teams have been working hard to design a high quality transition experience for customers,” Carolyn Miller, a member of Microsoft’s AdCenter Community Team, wrote in a May 6 posting on the AdCenter Blog. “We’re working toward completing this transition in the U.S. and Canada before the start of the 2010 holiday season, with additional countries following on a staggered schedule beginning in 2011.”

Yahoo customers “will start to receive emails from Yahoo in the coming months with tips on how to prepare your campaigns for Microsoft AdCenter,” Miller added. “Beginning in late summer, Yahoo customers will be able to initiate the transition process, and have several weeks to complete it.”

In a separate May 6 posting on its Search Marketing Blog, Yahoo indicated that the transition to AdCenter would be delayed until early 2011 if problems threatened to drag the process into the holidays.   

The U.S. Department of Justice and the European Commission both cleared Microsoft and Yahoo to begin their 10-year search and advertising agreement on Feb. 18. “U.S. market participants express support for the transaction and believe that combining the parties’ technology would be likely to increase competition by creating a more viable competitive alternative to Google,” read a statement at the time from the Justice Department. “Most customers view Google as posing the most significant competitive constraint on both Microsoft and Yahoo, and the competitive focus of both Microsoft and Yahoo is predominantly on Google and not on each other.”

According to a recent report from analytics firm Experian Hitwise, Bing’s share of the U.S. search-engine market dipped slightly to 9.43 percent in April, compared to Google’s 71.40 percent and Yahoo’s 14.96 percent. While Google dominated with regard to overall searches, Bing experienced strong gains in a number of vertical industry categories, including health, travel, automotive and shopping.

If Yahoo’s search numbers are ported over to Bing with no attrition—a highly theoretical prospect—then Microsoft will be competing against Google with roughly a quarter of the U.S. search engine market. While that may not be enough to threaten Google’s commanding share, it will certainly alter the competitive dynamics of the search-engine landscape.

But the actualization of the Microsoft-Yahoo alliance also carries some risks.

“We believe the challenge now lies in implementing the partnership so that the transition is smooth for customers and partners,” analysts for FBR Capital Markets wrote in a Feb. 18 research note. “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.”