The saga of who will buy/merge with Yahoo continues with the announcement they are in talks with AOL about a potential merger to take on the digital world.  It is difficult to see how two very similar operations could effectively pull together to take on the market as is pointed out by Mashable.  They are both a web portal offering search functionality, display advertising and personal email so what a merger would achieve is slightly confusing unless the both of them are willing to merge their systems for the greater good of taking on Google and Microsoft in their respective strong holds.  The only benefit I could see is if by merging their two media selling/buying operations they could aim to offer the advertiser greater reach through one point of call but this is a tenuous link at best.  Maybe they have something else up their sleeve whcih could surpries us all but for me there is little benefit in such a merger.

Ive finally gotten round to having a little think about the big news story of the week, Microsoft tabling a bid of $44.6 Billion in cash and stock to buy its rival Yahoo.  There has been no official comment from Yahoo on the reports but I thought Id document my thoughts on the impace this could have.

The portal market

Yahoo and MSN are the two big players in the portal market, the one stop shop for all you web needs, search engine, web mail, news feed, weather reports, all in one place.  This is where Microsoft will gain a massive advantage and pretty much gain complete dominance.  Aside from the ISP sites, which gain their visitors through having a default homepage setting in the ISP setup process, Microsoft will have a dominance in this field comparable to Google’s in the search market (more of that in a minute!).  So what does this mean to MSN? Well instantly they will take on board the lions share of the portal advertising revenues around the world.  Yahoo has built an advertising model which is highly lucrative and brings in a huge amount of revenue each year, utilising the latest behavioural targeting technology to keep online advertising moving forward.  MSN obviously has its own advertising model and ideas on how the market is going to advance but they will automatically boost their ad revenues with the purchase.  It also sets them up well for the predicted rise in online ad spend over the next few years, from $40 billion to $80 billion if you believe the predictions, dominance in a market this size is a mouth watering prospect.

The search market

This is where it gets really interesting.  Microsft has struggled to gain a foothold in the search market since it launched its own PPC model in 2006 and I forecasted in a previous post (Microsoft sets its sights on 40% market share) that a purchase may be on the cards if they were to achieve their targets.  The purchase of Yahoo Search Marketing (YSM), if part of the deal, would possibly take their market share into the double figures in the paid search arena.  Their system is good at present, the quality of their traffic is good, its just the volume they have been missing.  YSM would help boost this and make them a legitimate number 2 in this arena and they undoubtedly have the fire power to make dents in Google’s dominance (see their response here).  It does raise the question, what does this mean to search agencies?  the market which was due to fragment with the launch of wikia search, AOL breaking out in the US, Ask hinting at the same, is now significantly consolidated if this deal does actually go through.  Does this make SEM simpler? Not really but it could be perceived that way, a post for another time I think.

How do they manage it?

This will be interesting, does Yahoo become Microsoft branded?  or is it just another property of the technology giant?  Does it become Microhoo? Yasoft? Mahoo? or does it become Yahoo - a Microsoft company? and more importantly for internet marketers do they keep the two infrastructures separate, the advertising interfaces, the search algorithms, the display advertising models.  This is what will be the key determinant of what this means to the industry and what it means to digital agencies.

Whether the deal goes through remains to be seen, when it goes through is another question yet to be answered. What is undeniable is that it is going to influence the online advertising market significantly, in what way, remains to be seen.

Exciting news in the world of search engine marketing, more thoughts and comments to come when I have the time!

Microsoft offers to buy Yahoo

By Franklin Paul and Tiffany Wu - Reuters

February 01 2008

NEW YORK (Reuters) - Microsoft Corp said on Friday it has offered to buy Yahoo Inc, the popular Web portal, for $44.6 billion in cash and stock, seeking to join forces against Google Inc in what would be the biggest Internet deal since the Time Warner-AOL merger.Microsoft offered to buy Yahoo for $31 per share, a 62 percent premium over Yahoo’s closing stock price on Nasdaq Thursday. Yahoo shares jumped to $30.75 in premarket trading.

Yahoo said the online advertising market is growing rapidly and expected to reach nearly $80 billion by 2010 from over $40 billion in 2007. Yahoo added it is “increasingly dominated by one player,” referring to Web search leader Google.

“We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” Microsoft Chief Executive Steve Ballmer said in a statement.

Yahoo was not immediately available for comment.

The company has been losing market share to Google and warned earlier this week that it faced “headwinds” in 2008, forecasting revenue below Wall Street estimates.

On Thursday, Yahoo disclosed that nonexecutive Chairman Terry Semel was leaving the board, ending its formal ties with the former chief executive, who is credited with reviving the company and then losing touch.

Semel, replaced as CEO last June, had faced heavy criticism for failing to move faster to meet both rival Google’s challenge in Web search and advertising and, more recently, the rise of social networking sites such as MySpace and Facebook.

U.S. stock futures jumped on the Microsoft news, which offset a disappointing earnings report from Google late Thursday.

Paul Mendelsohn, chief investment strategist at Windham Financial Services, said a deal made sense.

“Yahoo is having a really tough time competing against Google. Whether it’s a good price, I can’t see anybody else who is going to outbid Microsoft,” Mendelsohn said.

Microsoft said it had identified four areas that would generate at least $1 billion in annual synergies for the combined entity.

Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC, was less enthusiastic about the benefits of a tie-up.

“Shocking! To me, the premium seems exorbitant, for what is a dwindling business. I personally don’t see how the synergies of Microsoft-Yahoo is going to take on Google,” Smalls said.

(Reporting by Franklin Paul and Tiffany Wu; Editing by Lisa Von Ahn/Jeffrey Benkoe)

Copyright 2008 Reuters

Search engine land reported today the release of some new functional by ask which allows a user to upload their own personal background image for the search engine.  The functionality to add a skin to the background has been available since last year but this was only for predetermined images and wasn’t customisable.  I like the idea of customising the results page and this is a much simpler solution than Google’s which involves xml information rather than a simple image upload.  It is also much more flexible and interesting than msn and yahoo’s offerings which only allow the selection of different colour palletes for the page.

This functionality is just another stage in the battle for search engine supremacy but also for loyalty within internet users through added value.  Yahoo had this a long time ago through positioning itself as an information portal and one stop shop for your internet needs (email, news, sport, search…) a similar position taken by MSN.  Then Google smashed this with its simplicity and accuracy of results.  But even the big G has recognised the need to give people more and through iGoogle struck a balance between information on the page and usability by allowing the user to choose which information feeds they received.  The issue at the bottom of all of this is keeping people using your page/engine, setting it as their homepage, and a base for all their online activities.  If they can use your site for everything they need online whey would they go elsewhere?  The longer a user in on your site, the more searches they do, the more ads they view, the more ads they click, the more money you make! Simple.  Expect a lot more releases like in this in the next 12 months as the battle continues.

It’ll take a lot more functionality for Yahoo, Ask or MSN to catch Google but I do know people who now use the Yahoo homepage as they prefer it to Google so there is some movement going on.   You can check out the Ask function on the US site here, it is not yet available in the UK.

I had my first look at the Wikia Search alpha today and I have to say the results are absolute pants!  To be fair to them the people at Wikia do say the results won’t be great at the moment as the basis of their engine is that of user reviews and not so much algorithmic search, hence results will improve rapidly over time as listings begin to get scored by users.  I have to admit that I like the idea of a user ranked search engine, after all, how many websites do you come across which have absolutely no relevance to your search phrase? (my blog ranks rather highly for “search pornsex” for example!) But not only that, a user can make more judgements on things like usability and site layout than a search engine spider which should further help the best websites rise to the top.  The process appears relatively simple, hover over a result and a five star scale will appear allowing you to score the result, this will then be used along with the algorithmic properties to determine a websites position.  This will be wholly reliant obviously on users picking up on and participating in this ranking process so I will be watching with a lot of interest how the results improve over the coming weeks.Aside from the standard results there is also going to be a section at the top of results reserved for “mini articles” on each subject.  According to Wikia “These will vary in purpose according to the circumstance, but the primary uses will be:

• Short definitions
• Disambiguations
• Photos
• See also “

Generated by the users these will obviously take the same form of the Wikipedia pages and will undoubtedly include some Wikipedia content for sections yet to be populated by the new system.  Wikia Search undoubtedly has the potential to become the most relevant search engine but the worry, as has been the problem with tagging sites such as digg in recent times, is that people begin to play the system, creating alias accounts to boost their own contents ratings and therefore rank, totally devaluing the whole platform.  If Wikia Search really does become the next number one contender to the big G then the temptation to find a “quick win” within its system will grow stronger in line with its visitor stats.  At present I believe Wikia plans to get around the duplicate account problem by basing its user on IP address but that doesn’t sound like to much of a robust system to me and I cant imaging it will be long before the spammers have an easy way of beating it.

I may have sounded negative in this post but I honestly hope Wikia Search succeeds, I hate the dominance Google has on the search market.  I also love the thought of users producing the search results rather than a piece of software.  On this initial offering I think there is a long way to go with the next big pretender.