Microsoft, Yahoo Ad Partnership Still Can't Beat Google

Microsoft and Yahoo are reportedly involved in preliminary discussions about advertising and search, suggesting closure to Microsoft's failed 2008 bid to acquire the search engine company. 

As reported by The Wall Street Journal, Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz have been talking over the possibility of Yahoo handling Microsoft's display advertising, while Microsoft would handle search advertising.

In 2008, Yahoo co-founder Jerry Yang fought against Microsoft's attempts to purchase Yahoo for $47.5 billion, as Microsoft sought to more fully combat Google's dominance of the search arena. Bartz succeeded Yang in January 2009, and Steve Ballmer has been suggesting publicly that Microsoft was still interested in some sort of deal.

Before joining Yahoo, Bartz had been CEO for Autodesk, and had worked for Sun Microsystems and 3M, among other enterprise-centric organizations.

However, even if the two companies join forces, they may still have an uphill battle against Google's commanding market share, especially given numbers released on April 10. Google battles Microsoft and Yahoo in many areas beyond search, including e-mail. 

In its report on the U.S. search share rankings for March, The Nielsen Company found that Google was first with 64.2 percent of the market, followed by Yahoo Search with 15.8 percent and MSN/Windows Live Search at 10.3 percent.

Google Search had grown by 27.6 percent year over year, Yahoo Search by 1.7 percent and MSN/Windows Live Search by 0.3 percent. Other search engines, such as AOL Search, Ask.com Search and NexTag Search, had either single-digit or fractional market share.

Even if Microsoft and Yahoo were to combine their search apparatus while keeping the same percentages, they would still have only half the market share of Google. But, according to some analysts, the two would still be able to compete more effectively against the search engine giant together rather than separately.

"I think the combination would make a viable alternative to Google," Roger Kay, an analyst with Endpoint Technologies Associates, said in an interview. "Scale is a part of the game here, particularly when it's big enough scale so that Microsoft and Yahoo can bring their various ad networks and infrastructure together."

Other analysts share a similar, but slightly more pessimistic, view.

"I don't think a marriage between Yahoo and MS for search would have a huge impact [on] Google at all," Shar VanBoskirk, an analyst with Forrester, said in an e-mail. "I do think it would create a combined search engine/search marketing platform that is better for marketers than either Yahoo or MS is today, but I don't think it will threaten Google's lead at all."

VanBoskirk added, "I think the greater threat to Google is if MS and Yahoo allied around online advertising. Both of these firms lead Google in the display media space; combined, they would be an almost unstoppable powerhouse."