Microsoft, Yahoo Deal Approved by Microsoft Beneficiary

By Nicholas Kolakowski  |  Posted 2009-10-20

Microsoft, Yahoo Deal Approved by Microsoft Beneficiary

Microsoft and Yahoo's search-and-advertising agreement is still being evaluated by the U.S. Department of Justice, but the two companies have approval from at least one quarter: the American Association of Advertising Agencies, an ad-agency group that includes major firms such as Interpublic Group, Omnicom Group, WPP and Publicis Groupe.

"A healthy, competitive market for search and search advertising is crucial to the Internet's future." Nancy Hill, president and CEO of the AAAA, wrote in an Oct. 19 open letter to the DOJ. "We believe that Yahoo and Microsoft's proposal to combine their technologies and search platforms is good for advertisers, marketing services agencies, website publishers and consumers."

The letter does not explicitly mention that the combination of Microsoft and Yahoo potentially creates a more formidable competitor to Google, which currently dominates the lion's share of the U.S. search engine market and thus has substantial leverage to dictate advertising rates and rules. Nonetheless, Hill hints at the match-up in the letter's conclusion:

"As leading members of the advertising and marketing services industry, we urge the Department of Justice to bring its antitrust review to a speedy conclusion," Hill wrote. "This proposal enhances competition, and should be allowed to take effect as soon as possible."

Founded in 1917, the AAAA "produces approximately 80 percent of the total advertising volume placed by agencies nationwide."

One of the signers of Hill's letter is Maurice Levy, chairman and CEO of Publicis Groupe, which just finalized a deal with Microsoft to acquire Redmond's Razorfish digital-advertising subsidiary. Under the terms of that agreement, Publicis Groupe will pay Microsoft some $286.8 million and 6.5 million shares of stock.

Microsoft will gain a 3.3 percent stake in Publicis Groupe in return. In addition, Microsoft will have access to Publicis Groupe clients and offer them "favorable terms" on display and search advertising for a five-year period.

"We are grateful for the contributions that Razorfish has made to our online advertising business since joining the company," Microsoft CEO Steve Ballmer said in an August statement announcing the deal. "We look forward to continuing to work with Razorfish as one of our agencies."

Microsoft originally acquired Razorfish in 2007 as part of a $6 billion takeover of aQuantive. However, seismic changes in the online advertising landscape and Microsoft's massive search advertising deal with Yahoo may have made the subsidiary more of a misfit within Redmond's changing corporate structure.

DOJs Evaluation Progressing

By all public indications, the Department of Justice's antitrust evaluation of the Microsoft-Yahoo deal is progressing smoothly. During a Sept. 22 event at NASDAQ MarketSite in Times Square, Yahoo CEO Carol Bartz said the government's probe "is going on as we predicted it would," adding: "We don't expect any[thing] different than we did in July. We still expect it to close in early 2010."

Yahoo hosted that event to announce the launch of a $100 million branding campaign designed to help re-establish the company as a viable entity in the online space, despite the partnership deal with Microsoft and loss of market share to Google. 

Microsoft also confirmed, on Sept. 11, that the Department of Justice was examining the deal, but declined to share more than cursory details.

"As expected, Microsoft and Yahoo have received requests for additional information about the agreement," Jack Evans, a Microsoft spokesperson, said in a statement e-mailed to eWEEK at the time. "As we said when the agreement was announced, we anticipated that this deal will be closely reviewed and we are hopeful it will be approved by early 2010."

Under the terms of the agreement, Microsoft's search engine, Bing, will power Yahoo's search, while Yahoo will exclusively handle worldwide sales for both companies' search advertisers.

Since the deal was announced in July, though, Yahoo has been struggling mightily with the perception that Bing taking over its search apparatus reduces it to an online has-been. During an Aug. 24 press conference, Prabhakar Raghavan, senior vice president of Yahoo's Labs and Search Strategy, pushed the idea that, while Yahoo had pulled out of the "megawatt war" for search, it is very much a competitor in areas such as e-mail.

Yahoo's new strategy involves bolstering its current end-user offerings, including Yahoo Messenger and Yahoo Mail, while integrating sites such as YouTube, Facebook and LinkedIn into its front-end search results. The company evidently hopes that users staying on its sites longer will translate into increased advertising revenues.

Bartz, at the Sept. 22 conference, reacted with typical forthrightness at the idea that Yahoo was struggling, accusing the assembled media of playing up the company's supposed demise.

"I think people put a cloud over [Yahoo's] head, and the company put a cloud over its head," Bartz told the room's two dozen journalists. "I just want to transplant all you guys out of your cynicism. Why aren't you cynical about Google? Leave us alone-we'll just deal with our users because we do great things for them."


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