The Yahoo!-Microsoft Search Deal:
Benefits to Consumers, Customers and the Internet
On July 29, 2009, Yahoo! and Microsoft announced their agreement to combine the companies’ search and search advertising businesses. The agreement’s focus on search reflects the vital importance of search and search advertising to the Internet. Search is a critical part of people’s online lives and an important element of the Internet experience. It is how users find content and content finds users. Search also serves as the starting point for much of e-commerce; according to a recent study, 55% of e-commerce transactions originate from a search listing. Spending on search advertising likewise continues to grow—in a very real sense, it is the economic engine that drives much of the Internet.
Today, one company overwhelmingly dominates the markets for search and search advertising. Google’s dominance of search and search advertising continues to grow and become more entrenched over time—from 75% of worldwide paid search queries in May 2008 to 78% in May 2009. This lack of competition in search poses risks to consumers, advertisers, web publishers, and the entire Internet.
The Yahoo!-Microsoft deal will help bring vigorous competition back to search and provide real choice, better value, and more innovation. It will help Yahoo! and Microsoft achieve the scale needed to offer consumers, advertisers and web publishers an attractive and sustainable competitive alternative in search and search advertising. By integrating the companies’ existing search user bases and technologies, the combined platform will attract more advertisers and give them greater value for their search advertising spending. The combination also will reduce advertiser costs associated with managing ad campaigns on separate platforms. Having more advertisers will improve ad relevancy and will allow the platform to pay more to publishers for placement on their web sites. More advertisers will also enable the platform to reinvest in innovation to develop new and improved services for consumers.
By integrating the companies’ technologies and resources, the deal will accelerate innovation, generate efficiencies, and create a stronger business than either company could create on its own. It also will help foster a more open and vibrant search community to the benefit of all Internet users.
For consumers, the deal will:
Spur innovation and generate better user search experiences. People want a search experience that is easier, faster, and more relevant to their lives. By integrating the companies’ search technologies, the deal will generate substantial efficiencies. These efficiencies mean more resources to invest in innovation and designing better search experiences for users. Consumers will also benefit from receiving ads that are more relevant to their interests than either company can offer today.
Give consumers a more compelling alternative in search. Greater competition in search is vitally important to ensure that one company does not determine what people see and to ensure that access to the full universe of online content remains open and neutral. The deal will provide both Yahoo! and Microsoft with an enhanced search platform, allowing them to provide consumers with more competitive alternative in search than either company can provide on its own today.
Provide users with greater transparency and choice. The deal should also help generate greater competition in search engine practices on issues that matter most to consumer—including privacy, data security, and related issues. This deal ensures that the combined platform will provide users with a meaningful competitive alternative to the current dominant firm’s practices.
For advertisers, the deal will:
Help advertisers realize more value from their search ad spending. The deal will give advertisers a single platform to reach more users more efficiently and give them more search queries on which to bid. This will allow the platform to provide users with more relevant ads, which should result in more clicks by users and more sales for advertisers.
Provide advertisers with a more compelling competitive alternative in search. The current state of the market means that advertisers lack effective choices when selecting a search provider. This deal will help Yahoo! and Microsoft achieve the scale necessary to offer an attractive and sustainable competitive alternative in search advertising.
Help improve efficiency. The deal will make it more cost effective for advertisers to manage large-scale search advertising campaigns. Also, advertisers have criticized Google’s search business for its lack of transparency. These advertisers are likely to welcome the prospect of having a stronger competitive alternative.
For web publishers, the deal will:
Help the combined platform offer more competitive bids. An important share of many web publishers’ revenues come from “search syndication” deals, in which a web publisher agrees to host a search box on its site in exchange for a portion of the ad revenues generated from searches originating at the site. The combined search platform will be able to offer web publishers more competitive bids for search syndication deals than either company can offer separately today.
Give web publishers more compelling avenues through which to reach users. For the Internet to thrive, web publishers need vigorous competition between search engines in order to reach users through both natural and sponsored search results. Google currently operates as the search gateway to the web and the gatekeeper between web publishers and their audiences. The Yahoo!-Microsoft deal will give publishers a more compelling alternative in search.
Provide greater value and transparency. Many web publishers today find Google’s market power particularly troubling given its demonstrated willingness to usurp publishers’ content for its own services and profits. These web publishers are likely to welcome the prospect of having a stronger competitive alternative to Google’s practices in these areas.
For Yahoo! and Microsoft shareholders, the deal will:
Help both companies more effectively monetize their search investments. For Yahoo!, the deal will allow the company to continue to generate revenues from its search assets while freeing resources to invest in enhancing its display advertising business, providing even more innovation to advertisers. For Microsoft, the deal will enable the company to wring greater efficiencies from its existing search business and generate increased revenue by selling more high-quality search ads.
Promote an open and competitive Internet ecosystem. The deal will help create a more vibrant, competitive Internet ecosystem by providing a more compelling and sustainable search alternative to Google. Both Yahoo! and Microsoft are leading providers of online services and thus have a strong interest in ensuring that the Internet remains truly open and competitive. By bringing more vigorous competition to search and search advertising, this deal will help ensure that the future growth of the Internet is not subject to inappropriate influence by a single monopoly provider.