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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.

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