MIAMI, 19 FEBRUARY 2010 - Now is when the hard work begins for Microsoft and Yahoo, after finally getting the regulatory green light from the U.S. and the European Union to implement their ballyhooed search engine partnership.
To accomplish the lofty goal of offering credible search competition to Google, the companies will have to execute the terms of their deal carefully and precisely.
Otherwise, Yahoo and Microsoft could end up confusing advertisers, displeasing end users, demoralizing employees, alienating application developers and disappointing Web publishers, thus strengthening Google even more.
In an industry where culture clashes and corporate infighting often derail the best planned mergers and partnerships, Microsoft and Yahoo are embarking on a very complicated and extensive business and technology integration.
A lot is riding on how this 10-year deal gets implemented and all eyes in the search industry will be on them.
"This is like a baseball trade where you don't know from the outset who is the winner and who is the loser," said Gartner analyst Allen Weiner.
The deal, announced in July of last year, calls for Yahoo to outsource to Microsoft the back-end functions of its search engine, like crawling and indexing Web sites, as well as the ability to match queries to results. In addition, Microsoft gets a license to Yahoo's core search technologies, giving it the right to integrate them into Bing.
Yahoo has insisted time and again that it will continue innovating on the front end, offering enough unique search features and services to differentiate its engine from Microsoft's Bing.
Still, it's one thing to talk the talk and another one to walk the walk, said industry analyst Greg Sterling from Sterling Market Intelligence. Yahoo struck the deal in part to cut its costs in search. "It won't have the same amount of search money and bodies it has had," he said. "Yahoo doesn't have the same capacity as in the past to execute on a search vision."
While Yahoo search officials claim their efforts enjoy backing from the company's top executives, it's not clear whether CEO Carol Bartz fully understands the level of financial commitment required to stay ahead of the curve in search technology.
"Bartz is a skillful manager, but she's not a product person, and she may not fully appreciate some of the nuances of the search product in the same way as [former CEO] Jerry Yang," Sterling said.
"She's managing costs, speaking to Wall Street, as CEOs do, but one doesn't get sense there is the same type of passionate commitment [for search] as before," Sterling added.
And by the look of things, Yahoo needs to jazz up its search engine quickly. Since April last year, its search usage market share in the U.S. has dropped from 20.4 per cent to 17 per cent in January this year, according to comScore. Meanwhile, Bing has jumped from 8.2 per cent to 11.3 per cent in the same timeframe.
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