Posted April 27, 2009 3:00 pm by with 3 comments

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As you can probably tell, I’ve always been kind of partial to Yahoo walking away from Microsoft’s overtures. I’ve seen what Microsoft has done so far online and despite the fact that their combined traffic might be the only entity that could keep Google from a total monopoly on the search market, I’m not convinced the alternative is much better for Yahoo. And now somebody else is there to back me up: Silicon Alley Insider.

The Insider’s Nicholas Carlson acknowledges that they’ve long said Yahoo should go for a Microsoft deal for three reasons:

  • Like Microsoft CEO Steve Ballmer, we believe that combining Yahoo’s bidders with Microsoft bidders for the same search keywords would drive up cost-per-click.
  • Jefferies analyst Youssef Squali says outsourcing search infrastructure to Microsoft could save Yahoo $1 billion to $1.3 billion per year.
  • Finally, ad agencies tell us they don’t care if they buy search and display advertising from the same place.

But new information from a source “very familiar with Yahoo’s advertising business” yields four reasons why they #2 search company should just say no:

  • While most agencies and ad buyers may not care if they buy their search and display advertising from the same place, some do and the number is rapidly growing. Our source estimates that two years ago, probably 30% of Yahoo’s advertisers bought into this convergence, 50% buy it now and next year, 70% will prefer taking their business to a search engine that can also sell display advertising and vice-versa.
  • About 25% of Yahoo’s display revenues come through behavioral targeting, which doesn’t work if Yahoo doesn’t know what search queries its users are using—giving up search could drastically damage Yahoo’s display business.
  • Google would be the only major Internet player that sells both forms of advertising. “If Yahoo and Microsoft split the baby, Google that will become much stronger in the display space,” says the source.
  • Selling search would make it more difficult for Yahoo to recruit top engineers and sales people.

Clearly, Yahoo doesn’t want to sell off half of its core business and cripple the rest.

The source also gives a list of stipulations Yahoo should make to be sure to maintain its search and display businesses:

  • Feed its display advertising buyers into the search buying process without Microsoft’s help.
  • Gain access to all search activity on both Microsoft and Yahoo search entrances.
  • For good measure, Yahoo should be able to track how users interact with Microsoft’s Web properties — including its ads.

While it has always seemed obvious to some people that a deal with Yahoo and Microsoft was not only beneficial but inevitable, clearly this isn’t a fait accompli. The source tells the Insider that no one at Yahoo really wants to make the deal, although the bottom line may end up dictating.

What do you think? Would a search deal with Microsoft really hurt Yahoo’s display business? Or is this source just worried about Microsoft taking over?

  • I think Yahoo should say no for one very simple reason … in 20+ years I have yet to see Microsoft make anything they bought better. Maybe I’m a simpleton but if I was Yahoo, I’d want to be better off after the purchase, not simply the same.

    Christopher Ross’s last blog post..By: Chantelle Wattigny

  • commentator1

    Yahoo should make the deal a long time ago. simple, yahoo has users, that’s all. just like google, they have users. both of them don’t have technology. they have websites, users like to visit. i don’t see any part of it a regular joe can’t do. facebook, heck, i hate this name, is the same, just a website and happen to be popular. there is almost 0 thechnology. and ebay, another one. those stuff will go away with time, because they don’t have something that other people can’t do. Microsoft, IBM, HP… that’s what last. somebody even call google a tech company, just make me laugh.

  • Mike

    Couldn’t agree more. You hold this opinion probably b/c you don’t hold YHOO stock and you can think with a clear mind. I’m sure Carol is smart enough to realize that selling off search would be shortsighted and would represent a fastrack to irrelevance.