• July 30, 2009

    The Benefits of BingYa!

    Yesterday's announcement of a 10-year pact between Microsoft and Yahoo! changed the trajectory of the search engine industry. Where there was no apparent competition in the business of search last week, the alliance between the second and third place search engines has at least laid the foundation for a credible though not necessarily dangerous competitor. Under the terms of the agreement, Microsoft's new search engine Bing will serve algorithmic search results on Yahoo!'s network. Yahoo! will, in turn, take over the provision of paid search advertising and contextually based ad placement across Microsoft search and web properties. Microsoft will support Yahoo! with revenue guarantees for the next 18-months and Yahoo! cedes all its search technology, including its deep well of patents, to Microsoft. Though Yahoo! will be taking over the paid search advertising end of the business for both companies, Microsoft's Ad-Center will be the PPC ad-buying platform, replacing Panama, the platform Yahoo! spent the better part of the last four years building. Yahoo! will be able to drastically reduce its expenses through employment redundancies and savings from no longer maintaining or improving its search technologies. Microsoft's Bing gets instantly propelled to the #2 position providing about 1/4 of all search results. In battlefield terms, Microsoft has managed to ally with a former foe in what can only be described as a mutual defense alliance against a much larger enemy, the equivalent of the Greeks and Visigoths getting it together to fend off advances by the Roman Empire. Microsoft has closed one battlefront in order to focus on the more pressing problem of a much greater one. At first glance, observers note that had Yahoo! seized a deal offered by Microsoft last year, shareholders and employees would likely have been better served though Yahoo! would have lost total control of its destiny. There are many who might argue that Yahoo! had already lost control of its own destiny, a power pushed away by the combined forces of the markets, two clever competitors and poor planning in the first half of this decade. Whichever the view, all agree something had to change. The coupling of Microsoft and Yahoo! will create seismic shifts in the various businesses and marketplaces surrounding the search industry. Let's take a look at the various sectors immediately (or very soon to be) affected by the new-born beast known as BingYa! Microsoft The biggest benefactor of the deal, Microsoft has taken the number two spot in its bid to disrupt the juggernaut known as Google. It has also put itself in a position to slowly subsume the search businesses developed and previously funded by Yahoo!. After the introduction of its new search engine Bing in late June, Microsoft needed to find a way to monetize it. While it owned its own ad-serving platform, it had not developed the technology to properly serve contextual paid advertising. Microsoft spent most of last year trying to purchase Yahoo!. Last year, Microsoft was offering nearly $40billion in total for all of Yahoo!. This year, it got the parts of Yahoo! it wanted, (search), without paying a cent. Financially, Microsoft has guaranteed revenues at Yahoo for the next 18 months. Microsoft projects about $1billion in extra revenues per year under this agreement. Yahoo! It is hard to say how badly Yahoo! has fared as a result of this agreement but from where I am sitting, it does not look as good as it could have. On one hand, the company survives with its name intact and the ability to focus on providing media to what is effectively the world's largest content network. It also gets to continue selling paid search advertising, the literal golden-goose of search revenues. Yahoo! projects a combination of expanded revenues and cost savings boosting their bottom line by about $700million. On the other hand, Yahoo! is no longer in the business of providing search results. Yahoo! is no longer an independent search engine. This must be a bitter pill to swallow for the company which was once the brand that represented search with one of the most talented development teams on the Internet. Yahoo! gives up a lot of technology and a decade's worth of innovation. As Danny Sullivan has noted, Yahoo! suddenly looks a lot like AOL. Google It is very hard to say how this impacts Google in the long run. In the short-term, the deal will have no appreciable effect on Google which is by far the most popular and profitable player in the search industry. Google never had to take Yahoo! or Microsoft too seriously in the search-space as it has held an virtually insurmountable lead against its two largest rivals for so long. Google actually made more money in the second quarter of 2009 than Yahoo! made in all of 2008. On the surface, Google's got nothing to worry about. In the long-run, a rejuvenated Microsoft poses a couple concerns for Google. One is that Microsoft might actually get its act together on the cloud computing front and in mobile markets. Google is investing a lot of energy and money in developing an operating system and ancillary services for hand held computing devices. Google's Chrome, Wave and Docs are all geared towards collaborative computing on hand held devices with documents stored on remote servers. That's the basis of Google's not-so-secret smash-Microsoft's markets strategy. Now that Microsoft does not have to concentrate energy on monetizing search, it can throw more resources into its core businesses, operating systems and productivity suites. The deal with Yahoo! gives it a way to further monetize both in the long run. Barring extraordinary developments, ten years from now Google will likely still be the number one player in the search sector. Search Engine Optimization Experts (SEO) Perhaps the sector with the most to gain and the most to lose from this deal, BingYa! has been widely praised within the SEO industry. SEO clients care about Google placements almost to the exclusion of placements on Yahoo! or what was Microsoft Live. I have the sense that SEO clients are as interested in Bing as other Internet users are however Google is where the vast bulk of search referred traffic comes from and therefore Google is front-of-mind for SEOs. Bing is generally thought highly of within the search marketing community. It is a good engine, perhaps better than Yahoo!'s. It is also fairly easy to optimize for, relying on a number of common signals such as title, text, internal site structure and topical relevance from page to page within a site. Because Google has basically defined SEO technique for the past five years, optimizing for Yahoo! and Microsoft Live was always a second thought. The advent of a two-search engine system might increase the perceived importance of non-Google placements, especially when one considers that the combined reach of Yahoo! and Bing is nearly 30% of the total search market. Paid Search Engine Marketing Experts (PPC) The agreement between Yahoo! and Microsoft will have an enormous impact on the PPC business. Yahoo! is the world's largest content network. Microsoft owns one of the world's largest content networks. Combined, the two networks are too large to be adequately described. Imagine being able to contextually place advertisements throughout that network? It is going to take between 18 - 24 months (after regulatory approval) to combine Yahoo! Search Marketing with Microsoft Ad-Center. When the two are merged, Yahoo!'s already developed sales force will use the Ad-Center platform to enable PPC advertising to the biggest passive audience possible. The real question will be, will Internet users actually choose to visit Yahoo! or Bing to conduct searches. Pushing contextual ads to content sites is one thing. Having consumers come to you and pre-qualify themselves before having advertisements pushed across their monitors is quite another. I suspect the deal will turn out to be very beneficial to the paid search marketing sector and might further popularize contextual online advertising for businesses. Traditional Media Players Note to Disney, Time Warner, Sony, Fox and others traditional media makers; re: The Future That thumping sound you hear is the last nail in your collective coffin being positioned or it's the sound of consumers dancing on your graves. I'm not sure which because I can't really hear that thumping myself. I only have your confused and often off-point descriptions and convolutions to judge the noise by and I can't be sure you have the background to properly describe it in the first place. Remember Lloyd Braun? He was the guy who worked for Terry Semel when Semel was chief Yahoo in the early part of this decade. He was nicknamed Hollywood Lloyd, in part because of his connections with the movie and music industries and in part because it was his job to collect professionally produced content for Yahoo!'s media network. His Burbank initiatives failed but the set of offices opened for his team remains. You're not going to see Lloyd again. He is rumored to be searching for the super-secret poker game Elvis, the Big Bopper, Buddy Holly and Marvin Gaye have going 24/7 in Bolivia. What you will see is a renewed effort from Yahoo! to capitalize on convergence. Expect it to be their mantra but don't expect them to want to pay much for your media. It's not media anymore anyway, it's content now. Content isn't worth as much as media once was. Get used to it. The Yahoo! - Microsoft deal, for traditional media, represents a perfect storm of convergence and the ability to distribute internally monetized content. Where the traditional media businesses controlled distribution and made its wealth on excellence and exclusivity, the Internet allows anyone with access (about 1/4 of the world's population) to be as excellent as their talent allows. Knowing that both Microsoft and Yahoo! desperately need to expand distribution channels and, knowing that both now have the ability to concentrate on either creating or acquiring those new channels leads me to believe we're going to see something disruptive on the distribution front in the next half-decade. End Note: I'm not even thinking about the video game market in this piece. That alone is worth another column and a lot of thought. There's a number of other areas I'm not actually touching on in this piece. In the future, I want to think about display, real estate, news aggregation, instant messaging, file sharing, social media and a host of other patented tricks owned, operated or in development from Microsoft or Yahoo!.