Yahoo and Microsoft Team Up to Take on Google

With the recent news that the Australian Competition and Consumer Commission (ACCC) has given the green light to the proposed Yahoo/Bing search network deal, the question now becomes are Microsoft and Yahoo finally in a position to take on Google?

The deal struck between Yahoo and Microsoft will see Microsoft’s Bing-powered organic search results displayed in Yahoo searches whilst Yahoo’s Search Marketing program will control paid results in Bing. In essence, what it will mean is that Yahoo and Bing will have the same search results.

In Australia, Microsoft’s AdCenter program is not available, as Yahoo and Microsoft already have a deal that allows paid search placements on Microsoft search networks (Bing, NineMSN, Live, etc) to be controlled using Yahoo’s Search Marketing system. This means that in Australia, the deal does not have as major ramifications to the search engine landscape as it does in other countries around the world.

In Australia, the only real change will be in Yahoo’s organic search results, which will now be powered by Bing.

To have an idea about the implications of the ACCC’s decision, it’s important to understand that in markets where there exists an oligopoly (only a small number of firms controlling a large portion of the market), the ACCC will often step in to oppose the big players merging or striking arrangements that could hamper competition.

However, in this case, the ACCC found that the deal would be unlikely to reduce competition because:

• Microsoft and Yahoo already have a deal in Australia with paid search ads. Currently, ads on Bing are already controlled through Yahoo’s Search Marketing program in Australia, meaning the new deal did not present as much of a change to the way Australians are presented with search results when compared with the rest of the world.
• Yahoo and Microsoft’s current market share was so insignificant when compared to Google’s, the deal is unlikely to result in any additional market power.
• The deal is unlikely to reduce innovation in the search engine industry.

The ACCC’s ruling, whilst a good result for Microsoft and Yahoo, is also a bit of a back-hander, because it essentially means the ACCC considers the multi-billion dollar companies of Microsoft and Yahoo small players in the industry, and not big enough to be able to obtain any market power.

But despite the deal, Google is unlikely to be worried. Microsoft has spent millions on advertising Bing worldwide, yet despite this, has failed to grab any significant market share from Google.

As for whether Yahoo and Microsoft are now in a position to take on Google, I doubt it. Google’s massive paid search “cash cow” is funding an innovation program others can only dream of. Wisely, both Yahoo and Bing have realised the only way they can stop Google is take their search engine market share, hence dampening their massive advertising revenues.

However, this is a classic case of easier said than done.

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