Yahoo Gives In to Microsoft, Gives Up on Search

July 29th, 2009

Via: Business Week:

Ever since Microsoft (MSFT) made its $45 billion bid for Yahoo (YHOO) in early 2008, it was clear the software giant was serious about taking on arch-rival Google (GOOG) in the lucrative Internet search business. And now, after more than a year of more limited talks after Yahoo denied that bid, it seems Microsoft has achieved its goal. If reports of an impending deal between the companies prove true, Microsoft will emerge as the clear No. 2 player in search.

In a deal that presages its departure from a market it once dominated, Yahoo will essentially scrap its own efforts to best Google in search and instead rely on Microsoft’s recently debuted Bing search engine, according to reports in The Wall Street Journal and the BoomTown blog. Ads placed next to those search results would be served up not by Yahoo’s ad platform, dubbed Panama, but by a Microsoft technology called AdCenter, says another report from Advertising Age. Yahoo CEO Carol Bartz “is essentially giving up on search,” says Danny Sullivan, editor of Search Engine Land.

Yahoo salespeople likely will continue to sell the search ads that appear both on Yahoo sites and on Bing. And the company that sells an ad—in this case, Yahoo—may get as much as 80% of the resulting revenue. But Microsoft would nevertheless reap a reward that’s more valuable in the long run. The data on computer users’ online search and buying habits would ultimately reside on Microsoft’s computers, thereby improving its ability to automatically serve up the most relevant ads. “If Microsoft is running the underlying ad technology, it doesn’t matter who is selling the ads,” Sullivan says. “In the end, Microsoft will hold all the cards.”

He adds that most advertisers place ads by filling out online forms, with no involvement from salespeople. Maintaining control of sales makes the deal “sound rosier for Yahoo than it really is, because in the end Yahoo won’t have the technology needed to compete.”

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