Microsoft-Yahoo! merger targets Google
Updated on 29 July 2009
Microsoft and Yahoo! announce a marriage between the two companies' web operations in a deal that targets Google's search engine dominance, writes Benjamin Cohen.
Today Microsoft and Yahoo! have ended months of speculation and announced a marriage between the two companies' web operations - a deal that could one day end the near monopoly that Google has over the web.
Bing, Microsoft’s critically acclaimed new search engine, has started to grab market share. But under the deal announced today it will effectively replace Yahoo!’s search engine on the Yahoo! website.
While Google has around 90 per cent market share for search in the UK, in the US they are less popular with around 60 per cent of the market. Yahoo! occupies around 20 per cent of the market. Combined with Microsoft’s 10 per cent, they’ll be half as popular as Google.
The deal will involve Yahoo! selling pay-per-click advertising on both websites, which they hope will drive up revenues as they will no longer be competing with each other. But Yahoo! will keep 88 per cent of the revenue.
The deal will net Yahoo around $275m extra a year and will last for a staggering 10 years, a deal with a length totally unprecedented in the internet industry.
It's certainly nothing like the audacious offer of $46.6bn Microsoft made to purchase Yahoo! last year. Since then Yahoo! has to almost halved in value $24.23bn.
After the then Yahoo! CEO Jerry Yang failed in his attempt to secure a rescue deal from Google (which was banned by competition authorities), he was dumped and replaced by a new chief Carol Bartz, who has indicated she would be keen for Microsoft to make a new offer to by the company.
The problem for Yahoo! is that Microsoft's CEO, Steve Balmer, has made it plain that he no longer wanted to buy Yahoo! outright, and has gone instead for the deal announced today. It's certainly a canny move, one that may win approval and will probably net the same results for Microsoft as it would have if it had actually have bought Yahoo! last year.
Except it will probably save around $45bn, money the company will keep aside for a rainy day or two as the whole technology industry awaits yet more turbulence in its first major recession.
'Posh and Becks deal'
Mike Butcher from TechCrunch told
me: "It's a Posh and Becks deal in the US, but it's a Katy and Peter deal in the
UK.
"It's an A list-level deal in the largest search market in the world, the US. But for the rest of the world, Google is so dominant and Yahoo! is far behind."
Today effectively marks the end of the 14-year story of the Yahoo! search engine. Once the most popular website in the world, it morphed into a fallen giant.
But the giant that made two crucial mistakes. Back in 2000, at the height of the dot.com boom, it signed a deal with a little known company called Google. It actually paid Google to put their results on the Yahoo! website.
The public loved the search engine and many people clicked on the logo and decided to use Google directly rather than Yahoo!.
Then, of course, Yahoo! made the mammoth decision to reject Microsoft’s acquisition proposal last year. It demonstrates how two simple mistakes can completely alter the path of a company and the wider market.
Follow Benjamin Cohen on Twitter.
