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Agencies Applaud Microsoft-Yahoo Deal

NEW YORK Advertising agencies are bullish on the long-awaited Yahoo-Microsoft search deal. They believe it represents an important step in restoring competition to the search arena, although they doubt it will fundamentally alter the market.

Even so, the increased competition should help drive innovations and investments from Google, Microsoft and Yahoo, several agency executives noted, while providing an important counterweight to Google. Many, however, cautioned that it would do little to threaten Google’s search primacy, since it commands some 70 percent of the market.

“We have a much stronger No. 2, but Google will continue to dominate at least for the foreseeable future,” said Rob Garner, director of search strategy at iCrossing.

The logic of the deal from Microsoft and Yahoo’s perspective is scale. That word was used nine times by Yahoo chief executive Carol Bartz and Microsoft CEO Steve Ballmer in their conference call announcing the agreement. They noted that there would now be a more robust marketplace that would provide enough volume for advertisers to bid on two platforms. That in turn should improve ad quality and drive more clicks.

The deal represents a division of labor. Microsoft will handle the technology platform; Yahoo remains in control of ad sales. This was a critical point in negotiations, since Yahoo needs data from search results to inform display ad targeting and allow it to sell advertisers both ad products.

“Search plus display was their competitive advantage,” said Nick Bell, CEO of Performics.

Yahoo will have the ability to sell campaigns that run search ads on both Yahoo and Microsoft sites, as well as display ads on Yahoo sites. However, it won’t be able to extend those display pushes on Microsoft sites. The agreement also states that the companies won’t share search data, which would rule out Yahoo using Microsoft search information to target display ads on Yahoo. Bartz said the companies wanted to concentrate exclusively on search. The arrangement could create a disadvantage for Microsoft’s sales force, which would be unable to sell integrated search and display campaigns.

“That makes Microsoft’s sales job more challenging,” said Bryan Wiener, CEO of 360i.

In the short term, the danger of a complicated deal of this magnitude is the interim period. Yahoo and Microsoft executives said they’re aiming for regulatory approval in early 2010, with implementation happening over next two years. That could create a vacuum in the market. Microsoft did all it could to block Google’s deal with DoubleClick and then, successfully, its earlier agreement to serve some search ads on Yahoo. Google is likely to follow the same playbook with this agreement, potentially delaying its deployment for some protracted period of time, warned Bell. Performics, now owned by Publicis Groupe, was part of Google’s purchase of DoubleClick.

“The question became how long will it take,” he said. “Google will do everything it can to delay this deal. There’s a ton of distraction that goes on. You can’t do any integration until it’s done. It allows Google a long time to innovate.”

The integration itself will present further challenges for the companies as they sort out new systems and processes.

“You’re going to have [Yahoo] sales people that have to get comfortable with using different systems, different targeting and retargeting technologies,” said Chris Copeland, CEO of GroupM Search. “How long is that going to take?”

The move could also help resolve what some execs saw as Yahoo’s identity crisis, as it sought to be both a media company and a tech company competing with Google. Now that it has thrown in the towel on competing head on with Google, effectively scrapping its Panama system previous management invested heavily in, the company has an opportunity to take those resources and apply them to its sales capabilities, agency execs said.

“The hope is this is going to allow Microsoft to focus more efforts on building a world class search engine with Bing and Yahoo will concentrate its resources on building a world class media company,” said Wiener.

via Agencies Applaud Microsoft-Yahoo Deal.

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