Source - Bangkok Post
by SUCHIT LEESA-NGUANSUK

Analysts Ovum and Forrester believe implementation of the Microsoft-Yahoo! search engine deal will be challenging and risks need to be managed, especially in terms of short-term revenue.

But the agreement is giving interactive marketers a significant, credible alternative outlet for their search spend, while driving Google to provide better competition on price for prospective advertisers.

Yahoo! and Microsoft announced the deal last week, bringing to an end a protracted period of speculation and discussion. But David Mitchell, a research fellow at Ovum, said both companies _ and in particular Yahoo! _ would have been better served if an agreement had been reached much sooner.

While the deal will allow a stronger competitor to Google to emerge, there are two caveats that need to be considered, he said.

Firstly, when the ``Microhoo'' proposition is complete and has been launched, Google will still be the dominant market force, with a 70-80 percent share of the internet search market.

The second is that the deal and most of the commentary is focusing heavily on the US and European markets.

In the Asian market, he pointed out, there are several very strong local competitors that continue to be more popular than Google, Microsoft or Yahoo!. In China, for example, Baidu is a very strong player, while in South Korea Naver is the most popular search provider.

Given that Asia boasts the faster-growing population of Internet users, both Google and the combined Yahoo-Microsoft proposition will need to work very hard to make inroads into this highly lucrative market.

In terms of the mechanics of the Microsoft-Yahoo deal, there are few surprises. Ostensibly Microsoft will be the technology provider, drawing on its considerable expertise and investment capability for search R&D.

Yahoo!, by contrast, will focus on advertising and media, playing to its historic strengths. Both companies are playing to their core competencies, in an effort to compete more effectively against Google.

The implementation of this deal will not be without its challenges. There are significant engineering obstacles that both companies will need to work through and a substantial change in management responsibilities will be required to implement the agreement and the vision it encapsulates.

And Mitchell wonders if the excitement of the agreement will detract from either companies' existing daily business: ``It would be too easy to let this significant deal draw attention away from the task of developing and selling great products, thereby risking short-term revenues,'' he said.

Big two play their core competencies

Ovum senior analyst Mike Davis added that under the terms of the agreement, Yahoo! gets to use Microsoft's Bing search engine rather than its own, and Microsoft will pay Yahoo! 88 percent of search revenues arising from Yahoo! sites for five years.

Microsoft gains exclusive licence to Yahoo!'s search technologies, which Microsoft will be free to integrate into its own. It also gains access to all of Yahoo!'s long-standing and loyal customers, and Yahoo!'s self-serve advertising will migrate to Microsoft AdCenter.

Basically, both companies are playing to their core strengths: Microsoft to the technology and Yahoo to its domain knowledge in advertising and media.

As Ovum has previously stated, Bing is not a ``Google killer''. However, with the addition of Yahoo!'s customer base and its targeting of higher-yield advertising, the new so-called ``decision engine'' could start to give Google a serious run for its money, and provide better competition on price for prospective advertisers.

Furthermore, the now-bitter rivalry between Google and Microsoft should ensure that improvements to the functionality and usability of the respective search engines will continue apace.

While the deal is cited as boosting Yahoo!'s operating income by $500 million (17 billion baht) and reducing costs by $200 million (6.8 billion baht), the company's shares are currently trading at only half the value offered by Microsoft in January 2008, and fell a further 10 percent after this announcement.

This does give Yahoo! CEO Carol Bartz a period of time and some money towards its vision of being the world's ``largest online media company''. However the use of Bing by Yahoo! will not start until early 2010 and Microsoft, or others, might still take the opportunity to buy the former Internet search leader at a marked-down price in the near future if Bartz cannot deliver that vision in the 10-year lifespan of the deal.

Better for marketers

Meanwhile Rebecca Jennings, Principal Analyst at Forrester research, commented on her blog that while this deal won't immediately worry Google _ in the US, it has around a 65 percent share of the search market _ the new Microsoft/Yahoo! combination will create a more viable second-string player, giving interactive marketers a significant, credible alternative or additional outlet for their search spend.