Finally after months of speculation, Microsoft and Yahoo! have decided to join forces and form a partnership in Internet search and advertising that primarily aims to take on market leader Google’s search engine dominance.
The merger will include Yahoo! selling pay-per-click advertising on both Microsoft and Yahoo! websites which they hope will increase revenues as there will no longer be competition between each other. But Yahoo! will keep 88 percent of the revenue. The merger will add to Yahoo!’s earnings of around $275 million extra a year plus there will be a substantial drop in its investment in technology development and this merger will last for a whopping 10 years.
However, Yahoo! had made two critical mistakes. Around June 2000, it replaced Inktomi’s search engine with Google and actually paid Google to put their results on the Yahoo! website. Users loved Google’s search engine and decided to use Google directly rather than Yahoo!. Just last year, Yahoo! made another crucial mistake to reject Microsoft’s 46.6 billion proposal last year. It shows how two simple decisions can completely affect the route of a company and the overall market.
So why did Microsoft acquire Yahoo!? The answer is online advertising. This merger means more competition to the online advertising and search engine market. Microsoft is anticipating that a long-term merger with Yahoo! will give it the magnitude and understanding it needs to attract more users, advertisers and ultimately more revenue.
Even though the Microsoft-Yahoo! merger has increased their market share to a total of 28 percent in the United States alone, Google still holds the majority of it by having 65 percent of the market share, and it will be a tough fight for Microsoft-Yahoo! to try and persuade dedicated Google users away from their favourite search engine.
When it comes to improving its search advertising system, Google has the upper hand on both Microsoft and Yahoo! base on what works and what does not. Google takes note of numerous factors to find out how likely it is for a user to click on an advertisement. True, Microsoft does have brilliant computer scientists working on the same dilemma, however Google’s lead in front is staggering and Microsoft’s dedication to search is pale in comparison to its cash cows like Windows and Office.
Users love Google as it is just plain search engine and compared with the other search engines there is just too much clutter. What users want is an easy to use, find and remember search engine that is accurate in its results when they type in their searches.
Microsoft will prove to be a challenge though for two reasons. Firstly, it has plenty of cash to spend on online advertising and search engine technology and secondly future growth of the company depends on this merger.
Microsoft’s new search engine Bing has started to grab market share and with the merger of Microsoft and Yahoo!, this will effectively replace Yahoo!’s search engine on the Yahoo! website. The advantage of using Bing is the fact that it allows users to purchase book travel, goods and discover credible health data easily. Users can use Bing for shopping and the site provides users with an Amazon-like experience. Although some analysts say this is less likely to attract fans of Google’s search engine but may attract those who use Yahoo!’s search engine.
On the other hand, Yahoo!’s strengths can be seen through its bigger market share which directly means that it has more relationships with advertisers than Microsoft does. Yahoo! has also been working on a tight budget for some time and its technology has become stagnant as has its ability to update it. Though Yahoo! investors might be disappointed with the merger, the cost of trying to catch up with Google and Microsoft would be substantial and it would not stand a chance in the Microsoft Google war.
There is still a long road ahead for Microsoft-Yahoo! to even take some of the lead from Google. But no doubt, competition does drive companies to improve their products/services. For some time now Google has been the only major player in the search engine industry and a Microsoft-Yahoo! combination will create a search engine that will certainly pose a bit of a threat to Google. Time can only tell how users will respond to new avenues of search.
