Wednesday, July 29, 2009

Will the Microsoft Yahoo Deal be Good for Google?

Plenty of fish in the sea?
Here's a plotline I haven't seen get much coverage...

Microsoft and Yahoo acknowledge this deal will take time to pass DOJ review and full implementation is "expected to occur within 24 months following regulatory approval."

So what's going to happen over the next 24-36 months? Is Yahoo really going to invest in keeping its search engine up to snuff?

Bartz even said, "With Microsoft powering Yahoo! Search, we’ll be able to focus on the things we do best -– being the center of people’s lives online with properties like our homepage, mail, finance, news, sports, entertainment, mobile, etc."

I'm guessing that focus is going to shift tomorrow, not in 2-3 years.

With Yahoo's search product being left to rot, can it really be expected to maintain its 20% market share? Hardly. And where are those users going to migrate?

It's possible a good chunk of them will go to Bing. In fact, when Yahoo lost 0.5% share in June, Bing gained 0.4% while Google remained flat.

But, surely, Google will pick up some disheartened Yahoo searchers over the next couple years. The question is how many.

It's quite possible that we could be looking at a search pie in 2011 (when, mind you, "full implementation" will still not be complete) that could have Yahoo down to 10%, Bing up to 15% and Google sitting pretty with 70% -- up 5% from its share today.

More interesting threads around this deal in the updates to my previous post -- Bingya!

Update 7/30: Had an interesting back and forth on Twitter with Peter Hershberg, Co-CEO of Reprise Media, that I thought I'd share here. I'll break from tradition (read: laziness) and paste them in top-down chronological order, starting with Peter...

@AaronGoldman POV on Y Search being left to rot is flawed. Y has to invest in case deal isn't approved & to ensure max traffic to monetize.

@hershberg Agree they "have to" but will they? When push comes to shove, where are Yahoo's best tech resources gonna be deployed?

@AaronGoldman There is distinction betw investment in algo and investment in UI. Y prob does more of the latter. Users won't know difference

@hershberg Good point. Bing was really UI upgrade not algo though & it only netted 0.4% share. So if Y algo goes to crap, won't users flee?

@AaronGoldman If users thought it truly went to crap I guess they would. But I have to think there's commitment to MSFT to at least maintain

@hershberg I think the only commitment that matters is the guaranteed payments YHOO is sitting on for 1st 18 mos. ;)

@AaronGoldman Well, I think that would be insanely shortsighted -- even for Yahoo. We shall see...

@hershberg On that we can agree, my man.

Update 7/30 #2: Fortune has a nice interview with Bartz and Ballmer going a little deeper on some of the outstanding Q's around the deal.

A couple quotes from Bartz caught my eye and reinforced my POV that Yahoo is likely to de-emphasize supporting its search product in the short term and prioritize other media and technology projects...

"Over the following 24 months some costs will be reduced."

"But back to the investment: The fact of the matter is that with half a billion people coming every day to a Yahoo site around the world, this actually gives us a better chance to take the money we’re saving and get more audience. We can get more audience because of better properties, stronger entertainment properties. We have all kinds of ideas. We can focus on display advertising technology."

Update 8/3: More good news for Google. Yesterday, the New York Times published an interview with Carol Bartz in which she said, "she sold the search business because Yahoo could no longer continue to match the level of investment Google and Microsoft were making in searching, one of the Web’s most lucrative and technologically complex businesses."

Later the article pointed out that "
Yahoo will lose some of its most talented engineers to Microsoft and as many as 400 employees through layoffs."

I just don't see any way Yahoo will invest in its search product in the near-term. You don't announce a deal like this and then continue to dump money into what you conceded was a business that couldn't keep up.

And even if you postpone the layoffs until after the deal closes, I can't see how Yahoo's top search engineers would just stick around waiting for the verdict. Sure some may go to Microsoft but I'm sure others will flock to Google.

So Google may not only gain share over the next couple years while this deal comes together but it may also gain some intellectual capital.


Vengeful said...

I love the graphic.

But what about Ask?
People always forget about poor Ask.

Aaron Goldman said...

What About Ask? Why Ask Why?

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