There have been few stories that have garnered quite so many virtual column inches as the Microsoft and Yahoo merger agreed earlier this week. The conclusion to a drawn out and often barbed takeover bid of the software giant and the second largest search firm has taken many by surprise.
Yes, Yahoo did the right thing by accepting that their search but somewhere in the process they have managed to lose the “boatloads of cash” Carol Bartz said they would have to be offered and replaced it with “boatloads of value.” Unfortunately investors appear to be more interested in the more tangible financial benefits of a cash heavy takeover, with 16% of their value wiped off almost as soon as the deal was struck.
But who is really getting the better out of this deal? I initially hypothesised that Yahoo probably wouldn’t be all that unhappy, at least within the halls of their Sunnyvale HQ. With falling revenue and waning relevance, they needed something to reenergise the company. Essentially Yahoo had become a search engine with search being its biggest weakness, which is clearly not an ideal scenario.
Microsoft on the other hand are saving, and I’m going to use that Bartz-ism again, ‘boatloads of cash’ but are still getting what they want from the agreement. Their issue was that they actually had a search engine worth using, Bing, but uptake of the product was painfully slow. They needed a way to monetise the new engine, something that Yahoo specialises in.
It’s a marriage of convenience, nothing more. They’ve even set a prospective divorce date already too with the 10 year initial agreement in place. Yahoo couldn’t afford to turn down another approach after the disastrous reception to the previous snubbing; they’re still in a strong position, there can be no doubting that, but it is one that is continually being weakened. Microsoft on the other hand appear hell-bent on catching and overtaking Google, something they can’t achieve on their own.
The major issue facing both Yahoo and Microsoft in their bid to get to the top of the search engine world is familiarity. Google have been the top dog for so long that even their name has become synonymous with search. People don’t ‘Yahoo it’, they certainly don’t ‘Bing it’, we still ‘Google it’. So how do you break that dominance, how do you encourage the wider world that you’re better? Changing search engines is easy, but getting people to do it has proven to be far more difficult.
So can YaBing, Microhoo or whatever else you want to call them really take down Google? The figures suggest it’ll be a struggle. The combined powers of Yahoo and Bing account for just 11% of the global search market, Google on the other hand controls 67%; that’s going to require a major shift in attitude. It’s by no means impossible though. In Bing, they have a search engine that finally rivals the algorithm of Google. With their combined popularity for peripheral tools and services, which include email, messenger and news, they also have a strong core customer base.
Of course we could all be getting ahead of ourselves. There is still a great deal of litigation that must be carried out to determine whether this teaming up could be deemed anti-competitive; so much so that the expected finalisation of any deal isn’t expected until early 2010. In the meantime Google will no doubt be mustering new innovations, take Wave as a good example, that will leave Microsoft and Yahoo playing further catch up.
There are interesting times ahead in search though and this could well prove to be either a brand new dawn or just another in a series of false ones. If YaBing can get its act together in the next few years, which is the kind of timeframe they are realistically looking at, then maybe they can start eating into Google’s dominance and change public perception. But the main upshot of all this is that surely they now have the best opportunity that either company will ever have of catching the search titans, it’s a gamble, but it may well be one worth taking.