Why Buy The Milk When You Can Get the Cow for Free?

Yahoo Had No Leverage...

In case you didn't look at the stock market today, Bloomberg highlighted what investors think of the Yahoo! / Microsoft deal

“This deal was a big disappointment,” said Moran, an analyst in Boca Raton, Florida. “They needed this deal, and it shows in terms of how the negotiations were concluded.”

...Because Their CEO Did Not Grasp the Importance of Search

In the same article Yahoo!'s CEO justified the Yahoo!/Microsoft search deal as something that clears fog:

“The priority was not to do the deal,” Bartz, 60, said in an interview. “The priority was to get the fog away from the company. Yahoo got pegged as a search company and we’re not a search company. Search is only one aspect of what our customers do.”

To look at the highest margin and highest income piece of a business and call it fog is absurd.

How Search Sets a Baseline

Search is the most direct way to target ads at consumers. It is easy to establish a baseline values and measure change. It allows you to implement (and advertise) new product ideas at no cost.

The other important baseline evolving search sets is the difference between spam and value added content. If you have ever read any of Google's leaked remote quality rater documents you would see that the search result itself is a lower threshold to force the evolution of media.

Web Search Holds Everything Together

A lot of Yahoo!'s properties are somewhat average, but not remarkable. Some of them succeed ONLY because they are a part of the Yahoo! family of websites. Web search is the glue that holds the pieces together.

Search is the most profitable online ad market and having a big stake of that market allows them to promote their other business interests in a cheap & targeted way. Selling off the search assets does not suddenly put them in a strong competitive position.

It does not suddenly make their thin content sites thicker and more valuable. If anything it will make it harder for their other sites to compete as it will require them to be thicker to stay competitive when they lose the subsidy they were getting from search.

And Microsoft bought Yahoo! Search for $0:

Besides better exposure for its Bing search engine by placement throughout Yahoo!, Ballmer said, Microsoft hopes to improve the quality of its searches by analyzing over a decade of data Yahoo! has on how people search. The data improves search quality for everything from correcting misspelled words to likely patterns of search behavior.

Danny highlighted how much worse this deal is for Yahoo! than the deal offered last year in a side by side comparison and wrote a search eulogy. Yahoo! spent a couple billion dollars acquiring Overture/AltaVista, Inktomi, and AllTheWeb. And they sold it for $0!

Deal Terms

From Microsoft's press release:

  • The term of the agreement is 10 years;
  • Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms;
  • Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.
  • Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.
  • Each company will maintain its own separate display advertising business and sales force.
  • Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.
  • Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.
  • Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
  • Yahoo! will continue to syndicate its existing search affiliate partnerships.
  • Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.
  • At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.
  • The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.

What is not in the deal terms is that Yahoo! will slowly erode search market share to Bing. By the end of the 10 year period Yahoo! could become AOL.

SEO Stuff Up in the Air

As far as SEO goes, a lot of stuff is still up in the air. If this deal goes through, what happens to...

  • the Yahoo! Directory (a wonderful link source)
  • Yahoo! link data (they are the best free public source)
  • Yahoo! SearchMonkey & BOSS
  • Yahoo!'s paid inclusion

There is a good chance all 4 of them go away.

Increased SEO Costs & Increased Barrier to Entry

For established marketers there would be some major upsides as well...

  • anyone with a well established website has a bigger advantage over new sites, and
  • with less public link data link buying might become less risky as reporting paid links might decline, and
  • it would be harder for competitors to clone your link strategy

Bing SEO Tips

If you have not yet read Bing's SEO Guide for Wembasters [PDF] then now would be a good time to get up to speed on it. When Bing launched we created a thread with a bunch of Bing SEO tips.

Published: July 30, 2009 by Aaron Wall in yahoo msn

Comments

fm.advertisingpro
July 30, 2009 - 6:04am

You hit the nail perfectly about Yahoo! becoming an AOL.
According to the post:

"Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites."

It's easy to rank on BING. Do you think it'll be that easy to rank on Google. Good news for us. Will we have to pay the $299 registration to get our new website up on Yahoo!?

July 30, 2009 - 6:23am

I buy the Yahoo! Directory links more for Google than for anything else :)

Gunter Eibl fro...
July 30, 2009 - 8:51am

Now it's official. There are only two players left. Two monopolists at the table and one big cake.

Gunter

k2seo
July 30, 2009 - 10:41am

Lets wait and watch how it's going to affect google.

SharkSEO
July 30, 2009 - 10:47am

Here's the response from a Yahoo engineer on what'll happen to the API and Site Explorer

http://developer.yahoo.net/forum/index.php?showtopic=2258

(In summary they're not sure but it sounds like they want it to stay. But then they would, I suppose).

Dudibob
July 30, 2009 - 12:54pm

Yahoo share price is going to continue to drop and when the ten years are up, it won't be a renewal of this contract, M$ will buy Yahoo out for a few million instead of the billions being discussed last year.

BZilberman
July 30, 2009 - 3:30pm

I'm not going to worry yet about the backlink date aspect. Already there are several sites available and known to any level SEO's: seomoz and majesticseo for backlink profiles, and there's very probably a bunch of high-level stuff I'm not important enough to know about ;0) If the Yahoo siteexplorer goes away, someone else will innovate a new way to check backlinks and make a lot of money. I bet a hell of a lot of people went back to their drawing boards yesterday to do just that.

SpeedyPin.com P...
July 30, 2009 - 4:53pm

I've been speaking with our rep at the company who does our PI. He will be speaking with their Yahoo rep today or tomorrow and will let me know about any pertinent information that was discussed--if there is any to even be discussed at this point.

A couple of points to remember is that we still have quite a bit of time to enjoy rankings and revenue generated from PI, as the deal likely won't be approved until sometime late in in 2010. And then there's the long implementation period covering several additional months.

Nonetheless, I will let you know if any significant information is passed my way. Otherwise, I'll be awaiting the outcome just like everybody else.

DottedSean
July 31, 2009 - 2:12am

It's a horrible deal for Yahoo! when you consider that Microsoft was going to give them $31/share a year or two ago for the whole thing.

Couple things I don't get.

1) Are both companies going to keep their advertising platforms and run separately? Will AdCenter allow users to just buy on Yahoo! or will they mix Yahoo! in with all partners? Will YSM allow you to advertise on Bing without opting into their crap search network? From the initial news reports it seemed to state that YSM was going to handle all the advertising, but the MS press release seems to say both will remain. As someone who thinks YSM is an utter joke these days (so much fraud), I'd much prefer AdCenter be available.

2) I understand the cost cutting of Yahoo not needing to maintain its search, but Bing is still far from coming close to Yahoo's search results. I see some real whacky stuff on Bing that makes no sense. Yahoo had its warts, but I thought their search engine was respectable.

3) Why 2 years to get this going? 2 years is a lifetime on the internet and who knows what technology will be available by then. They are treating the current search environment like something that will not evolve at all.

4) 10 years is a long contract on the internet. Why not just go 3-5 years?

The deal makes a ton of sense for Microsoft and seems to be a nail in the coffin of Yahoo!. I wouldn't be surprised to see Microsoft buy up the rest of Yahoo! in a few years when the share price is down much more. I still think Microsoft should have made a stronger play for the rights to other search properties like AOL and Myspace. Even if they didn't make money off them, having them available to advertisers would have made using Adcenter a must for anyone in the PPC game.

My biggest worry though is that we're down to two companies who control the world of search. The more there are, the more diverse you can make your marketing plan. Now it's two search engines or bust.

July 31, 2009 - 5:29am

1) I think they will be expected to buy both. AdCenter will end up becoming the core platform though...and hopefully they allow advertisers to opt out of some of the trash traffic, though it may be hard since as part of the terms Yahoo! is still able to run its current affiliated search deals. I am not sure if Microsoft appreciated how much garbage they bought off on that line item...but then the deal was mostly 1 sided outside of that point.

2 & 4) I think these were done to ensure that Yahoo! conceded the market to search forever (or long enough to start from scratch if they ever wanted to compete).

3) Both companies are terribly bloated.

davidsculbertson
July 31, 2009 - 3:23am

I used to work for AOL and back in 1999/2000, a somewhat similar event happened: AOL stopped internal development of search and slipped in Google as the backend, except Google paid upfront plus a revenue share. AOL's executives figured that search was sellable, just like all other content areas on AOL, since they controlled the on-ramp to the web. Little did they know they were sowing the seeds of their brand's destruction.

This was a wrong move in many ways. One of the biggest was that internal AOL content teams paid ZERO attention to SEO. And the proof is now in the pudding. Key AOL sites are largely invisible on Google, meaning a slow death. Even AOL-owned MapQuest is dying a slow death after falling from #1 on Google SERPs for the word maps!

July 31, 2009 - 5:20am

And that Mapquest reference is a powerful point about content. Just about any large scale consumer service (outside of search) can easily be duplicated by leading search engines, marketed inside search results, and promoted through a set of free APIs to buy marketshare from existing market leaders. Search is a wedge that allows search companies to promote everything else they do.

RossJames
July 31, 2009 - 4:57am

< "To look at the highest margin and highest income piece of a business and call it fog is absurd. Search is the most direct way to target ads at consumers".>

Search may well be the 'start' of a journey but the end result could quickly prove to be, a better means to target ads at consumers.

Certainly (and in terms of a better ROI for advertisers), I have no doubts about predicting that through this deal as you have outlined so well, display advertising will now provide the kind of scale that is desired and has been for some time. And that this will be proven to be a deal that has now drawn that 'line in the sand' in relation to the exciting future ahead for both Yahoo and MSN and many others who are involved. IMHO.

And I must say that the blind "ignorance" (?) surrounding the future of "display" and a soon to be 7/24 RTB auction based OPEN Marketplace (and any form of acceptance that it's upon us), amazes me...

What hope have the journalists who write the stories, the shareholders of Co's involved and generally the market in total have, when this is the continuous kind of reporting or, 'reaction' that we get to this history making deal?

Of course, we should all surely know by now that display is to become a "one stop shop" and that you can get to select an MSN or,Yahoo site (chosen audience), in a simple, single process. No?

All from within a global RTB (real-time-bidding & blind) OPEN auction marketplace. (Yes, on a bids based process at both the Ad/Pub ends.......... Allowing all advertisers to then 'fairly and squarely' "win" his/her target audience, by simply out-bidding the next advertiser (or, agency), that may be seeking the same inventory .. And simply by paying (or, meeting) the "ask" price from the publisher concerned, of course.. ALL done, whilst sitting behind a computer and can be a simple as the use of a credit card, only. How easy is that?

How effective, a cost saving and a what is to be a fully transparent (and equal to all - both buyer and seller - advertiser and publisher), operation can this not prove to be?

But of course, only time will tell. Yahoo now has 10 years to find out if they are on the right path. I suspect they will get to find they are, much sooner.

Now back to you original statement you made and that I have used above:

It was a known fact that Yahoo were losing ground in search and the rest (in time, for Yahoo) would have been history.. Change is inevitable in all walks of life...... Building a business requires a great deal of forward thinking. And to quote a reply coming from a reader of another article today (in support of mine), I will offer the following:

< Google once said that competition is only one click away, and that's true in a sense. There are very low barriers to entry for Internet search engines...... Yeah, Google is dominant today and "googling" has gone into the dictionary as a word, but Ford and GM were dominant too, and look at how many barriers to entry there are in the automobile industry, yet the Japanese automakers still defeated them eventually through decades of hard work and making good quality cars.

The Internet is a different beast and it won't take decades, it can be [only a matter of] years to topple a king. Facebook toppled MySpace in the number of users, Firefox is gaining on Internet Explorer, I can go on and on...>

.........So now, Yahoo and MSN (along with global, web based newspaper publishers, large global, web based multi media Co's and many others involved), both have 10 full years or, less to forge ahead with this "win-win-win" (for all involved), 'new way' of doing things. But yes .. Time will tell, it always does. And all, only an opinion of course.

Cheers!

bookworm.seo
July 31, 2009 - 10:52pm

"To look at the highest margin and highest income piece of a business and call it fog is absurd. "

It's a fog if they consider their core strength the content teams/sites. Considering they probably can't keep up in the algo battle, this choice to specialize is a smart move.

Besides that, I'm curious to know what you plan to do if Y! SE shuts off the API. Source link data from Majestic?

July 31, 2009 - 11:46pm

The problem is they haven't created expert level content in many verticals they have sites in. After they lose search I think a lot of their other verticals will decline as well.

And that might be our plan Gab. Not 100% sure yet.

RossJames
August 1, 2009 - 12:29am

Aaron, Yahoo are not 'losing' search. They are taking on Bing, that they were actually losing ground too, right?

And what of the YPN and it's 850 odd newspapers? Will they be next to install Bing? I think that it's highly likely or, (at least) many of them will do so.

It was from (within) Yahoo CC that Yahoo's CEO Carol Bartz had said - "We, now have a local sales force 13,000 reps strong"

<"To this end, we have announced today that we have expanded our relationship with AT&T to include the reselling of Yahoo! display ad inventory by AT&T’s advertising sales force.

Grouped with our strategic newspaper consortium partnership we now have a local sales force 13,000 reps strong. These relationships extend our reach into the fast growing local online advertiser segment.">

I also found this to be of interest.

"Signals That May Lead To Online's Next $25 Billion"

< ..A handful of correct signals that surfaced in 2007 were the portals that got into the "ad network game in a big way," Zinman says. Google bought DoubleClick. Yahoo bought Right Media and BlueLithium. The wealth of data that Yahoo gained and the depth of understanding of users has been transforming, he says. It seemed clear at the time that the portals would transform the network business.

Search has been the growth engine for the first $25 billion for online advertising, and it will continue to provide a boost, but there are signals in display advertising that have been ignored. Display will allow the ad industry to get to the next $25 billion, Zinman says.>

http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=1...

Cheers!

August 1, 2009 - 3:10am

I sorta see 3 or 4 issues with display ads going forward.

  1. A glut of inventory will keep lowering CPMs.
  2. As CPMs get lowered, many general media companies will go bankrupt.
  3. That will shift audience to niche topical portals.
  4. Many of the best of those niche topical portals will start creating their own products and services and sell ads to themselves.

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