Gauson

The Microsoft and Yahoo merger isn’t a foregone issue. It’s been three and a half months since the two companies announced they had reached a “binding letter agreement” on their search deal but straightening out the full pact is taking the two sides longer than expected.

In a statement, Microsoft said the two companies remain dedicated to their arrangement and given the complex nature of the transaction, there remain some issues that need additional clarity and definitive details. Yahoo then released a statement saying both companies are optimistic that they will be able to close their deal by early 2010.

For the time being, Yahoo is concentrating mainly on their media sites most of which are No.1 in their categories. Sites such as Yahoo! Sports and Yahoo! Finance are very popular and attract millions of unique visitors on a monthly basis. Microsoft, on the other hand, is happy that it is finally getting what it wants which is an increased search market share to take on rival Google giving them the scale and resources to create and expand the future of search.

At the end of the year, Yahoo plans to end its paid inclusion program, formally called Search Submit Pro which is similar to pay-per-click, after having received complaints that having paid advertisements incorporated in organic search results could create biased results. Yahoo’s page inclusion program enabled users to pay for page inclusion but not page rank.

On the plus side, having reliable and guaranteed page inclusion enabled web developers to optimize their web pages for specific search results. Protests were made as Yahoo’s page inclusion program was trickling into traditional search engine optimization (SEO) practices that included keyword manipulation and pay-per-click advertisements. Most web developers believe the end to paid inclusion will kick-start pay-per-click advertisements and other online marketing businesses. Yahoo had chosen the final date at the end of the year to give their advertisers time to adjust to the changes.

Last month, Google and Microsoft grabbed larger pieces of U.S. search market share whereas Yahoo lost market share for the second month in a row. Analysts say Yahoo’s 18% search share was the lowest mark ever and that Yahoo must find a way to stabilize its share loss. Microsoft on the other hand, increased its market share for five straight months, boosted by its new Bing search engine and integration of Yahoo’s search technology.

With Yahoo out of the core search business with Bing handling the back-end of the project whereas Yahoo will take care of the front-end design, lots of users will expect Yahoo to focus even more on the content side of the business so it is undoubtedly true that Yahoo’s properties such as Yahoo! News and Media Group, Yahoo! Sports as well as Yahoo! Finance will get lots of investments and plenty of attention. Seeing as how Yahoo will be left in a vulnerable position as it stated it can no longer operate search by itself, I cannot help but wonder what will be Yahoo’s imminent future?  But with passion and new creations to further develop search user experience, it is highly likely that Yahoo will carry on playing a significant part in all of this.

As Microsoft’s Bing takes over Yahoo search, web developers who saw a great deal of traffic from Yahoo will find it useful to optimize their own sites for Bing. With Bing utilizing Yahoo’s database of profiles, analytics and behavioral targeting, Microsoft is going to close the gap between itself and Google which in turn should aid in core search improvements and facilitate advances on their personalization front as well. It is exciting to know that search technology will continue to develop and converge with other digital arenas such as mobile, platform gaming and other interesting areas that we have yet to envision.

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.