Our first take on MSFT-YHOO: Less than meets the eye?

binglogo A search deal between Microsoft and Yahoo! hasn’t even been announced yet, and yet tidbits of information are being analyzed, scrutinized, and dissected all across the web.  Marshall Kirkpatrick at Read/Write Web sees bad news for search innovation of the kind Yahoo! has been pursuing, and Henry Blodget at Silicon Alley Insider is calling the deal “awful”.  Kara Swisher compares it to what Yahoo! could have got last year when Microsoft first proposed a search only deal (after Yahoo! nixed an all out acquisition by Microsoft), and we’re all anxiously awaiting more details.

In the meantime, we’ve been poring over what little “information” we could find on the deal.  First, a few questions that we haven’t seen addressed:

  • What happens to Yahoo!’s existing search technology?  In last year’s offer, Microsoft offered $1 billion for the existing search technology, which Kara Swisher categorized as a “low bid”, and “a kind of a direct insult to Yahoo techies”.  So if Microsoft isn’t offering cash up front this time, what happens to the search technology that is powering 20% of US search market share?  Certainly Yahoo! isn’t giving it away, after turning down an “insulting” billion dollars.
  • How much of Bing will make it on to Yahoo!?  Will it be the full experience? Maps, mobile, health, etc?  Or will Bing just replace the search bar on Yahoo! properties?  Of course the search bar represents the lion’s share of traffic, but still, how far will the deal go?
  • How closely will Microsoft and Yahoo! work together moving forward?  Henry Blodget foresees a nightmare scenario where Yahoo! salespeople yell at Microsoft technicians, forcing them to request transfers.  A little far-fetched, but there will have to be some crossing of lines.  How far will it go?  Who will be in charge?

Blodget paints quite a bleak picture of the deal.  We don’t see it quite that way, but what strikes us initially is this seems to be a “foot in the door” move rather than a blockbuster deal.  Initially, ad sales will continue on as they exist now.  According to the Ad Age report:

Yahoo is likely to take on exclusive representation of Bing inventory to eliminate channel conflict and complexity for advertisers, but not before both sides unwind the thousands of advertiser relationships and proprietary systems through which many large advertisers buy search ads.

In the next sentence, Michael Learmonth from Ad Age says that the two participants “have no reason to rush” a move to have Yahoo! control ad sales across all of Bing.  This smacks of “let’s get the deal done and we’ll figure out the sales later”.  For right now, the “incredibly complex” system of advertisers and relationships will remain just that, and perhaps become even more so.

So what we seem to have is a deal that doesn’t appear to hand over control of Yahoo!’s search technology, may not bring the full Bing experience to Yahoo! (earlier this week there was even talk that the Bing brand wouldn’t make it on to Yahoo!, with Microsoft only providing the technology), won’t unravel sales channels for quite some time to come, and will leave a large chunk of the revenue gained by getting Bing on Yahoo! with Yahoo!.  A far cry from Microsoft’s attempt to acquire the whole company, that’s for sure.

Still, it is (or seems to be) a foot in the door.  While Microsoft may not gain much revenue from the deal, initially, search share numbers are going to be very fun to watch again, and the perception of giving Google a run for its money may be worth it to Microsoft.  Untangling the complexities of ad buys somewhere other than Google needs to be done in order to compete, even if it takes a while.  And if this deal makes Yahoo! stronger, well a stronger Yahoo! powering more and more Bing eyeballs can only be good for Microsoft.