Another Day, Another Microhoo Rumor

Aaron Goldman, VP Marketing & Strategic Partnerships

Last Wednesday, the WSJ reported that Microsoft is taking a new approach to a Yahoo merger, this time trying to broker a 3-way deal that would send Yahoo’s search assets to Microsoft and the rest of Yahoo’s business to a 3rd party. The article -- which also included salacious details of the Yahoo-Microsoft negotiations over the past few months -- fingered Time Warner and News Corp. as potential suitors for Yahoo’s remnants.

AdAge has good coverage of this recent development and points out that the Google-Yahoo deal would not stand in the way as it has various outs for Yahoo (which, if it exercised, would put an additional $250MM in Google’s pocket -- nice insurance play there, Schmitty).

One thing that’s gone unmentioned in the analysis I’ve read is that the proposed 3-way deal would seemingly allow Microsoft to skate past potential regulatory hurdles. As Google pointed out when news of Microhoo first hit, an outright acquisition would give Microsoft a virtual monopoly on email and IM. In a 3-way deal, those products would not be folded in to the Big Red(mond) Machine.

So what of a searchscape with Google at the top and Microhoo nipping at its heels? Or rather, given the share split would be 65/35 in Google’s favor, perhaps a more appropriate analogy would be “in the same ballpark.”

Well, for one thing, it would make Microsoft (finally) a must buy for search marketers. I’m still amazed how many advertisers still aren’t buying Live Search. Even though it’s only 10% of the market, certainly covering brand terms and other top performers from Google and Yahoo seems to be a sound strategy. With a 35% share, the Microsoft Advertising search reps would finally know the joy of the phone ringing unsolicited.

At this point, it’s unclear which system -- AdCenter or Panama -- would be tapped to manage the combined Microhoo search inventory but I don’t think that would change its “must buy status.” With the deal now focused solely on search, my guess is AdCenter would win out as it is built for compatibility with Microsoft’s display media assets. That said, Panama might be calibrated to generate higher revenue per query and, with Yahoo dwarfing Microsoft in terms of number of advertisers, it might make sense for Microsoft to keep the platform intact at least in the short term.

Back to the compatibility issue… Microsoft was the first of the big 3 to make significant progress in allowing marketers to overlay keyword targeting when buying display ads. However, that feature has been used sparingly due to the limited volume available against finite selects -- eg, Men 35-54 who searched for “sports car” in the past 30 days. With the added search inventory of Yahoo, we’d (finally) have enough scale to make it worth planning and buying against these targets. For this reason, I expect AdCenter to win out in the long run.

As for what this deal would mean to Google… for one thing, I think it would keep the Big G on its toes. As I mentioned when the Google/Yahoo deal went down, my biggest concern is that, with little-to-no-competition in search, Google would lose its motivation to continue innovating and throw its best engineers against other channels such as TV, radio, and print.