Will Knight

A View from Will Knight

Should Google Worry about a Microsoft-Yahoo Deal?

After months of awkward courtship, Microsoft and Yahoo have finally agreed on an Internet-search partnership.

  • July 29, 2009

It’s been a rocky road, but Microsoft and Yahoo have finally come to terms on an Internet-search partnership. The 10-year deal will help stabilize Yahoo while giving Microsoft a better chance of building a successful Web advertising business to rival that of its newest nemesis, Google.

Under the terms of the deal, Yahoo will use Microsoft’s revamped search engine Bing on all its websites. Yahoo will also license its own search technology to Microsoft, to incorporate in Microsoft products if it chooses. In return, Yahoo will handle advertising for both companies and will receive a whopping 88 percent of search revenue over the first five years.

Once combined, Microsoft and Yahoo will have a 28 percent share of the search market. This only slightly narrows the gap with Google, which still dominates with two-thirds of the market. But the deal will help Microsoft gain ground on Google in other ways.

In the short term, Microsoft will instantly grab a much bigger audience for Bing. This will attract more Web advertising and should help the company’s engineers further refine the search engine’s underlying technology.

Over the longer term, it’s an important strategic maneuver for Microsoft as a business. As more and more key pieces of software move online, as well as the operating system itself, Microsoft is faced with a steady erosion of its traditional sources of revenue–licenses from companies and individuals. So it’s vital for the company’s future to build a lucrative business on the same foundation as Google.

What it all means for Yahoo is much less clear. The company will obviously gain short-term financial stability, but it risks becoming less relevant as an Internet business.

Most worrying for Google, perhaps, is the fact that recently Bing has been getting very positive reviews. Not only that, but a recent study from online advertising company Chitika claimed that Bing users are 55 percent more likely than Google users to click on advertisements after reaching a site. If that’s true, it could help lure more Web advertisers away from Google and over to Bing.

Get stories like this before anyone else with First Look.

Subscribe today
Already a Premium subscriber? Log in.

Uh oh–you've read all of your free articles for this month.

Insider Premium
$179.95/yr US PRICE

More from Business Impact

How technology advances are changing the economy and providing new opportunities in many industries.

Want more award-winning journalism? Subscribe to Insider Plus.
  • Insider Plus {! insider.prices.plus !}*

    {! insider.display.menuOptionsLabel !}

    Everything included in Insider Basic, plus ad-free web experience, select discounts to partner offerings and MIT Technology Review events

    See details+

    What's Included

    Bimonthly home delivery and unlimited 24/7 access to MIT Technology Review’s website.

    The Download. Our daily newsletter of what's important in technology and innovation.

    Access to the Magazine archive. Over 24,000 articles going back to 1899 at your fingertips.

    Special Discounts to select partner offerings

    Discount to MIT Technology Review events

    Ad-free web experience

/
You've read all of your free articles this month. This is your last free article this month. You've read of free articles this month. or  for unlimited online access.