Industry News: Yahoo Investors Blue over MicroHoo but… What’s that over There? Say Hello to YahOogle!

Written By Noah Mallin | June 13, 2008 | No Comments

Doug Henning and Miss Piggy

Well it’s hard to avoid addressing the big news that broke yesterday evening in the world of search. YouTube engineer Geoff Stearns did indeed accede to his girlfriend’s pleas and got himself a haircut. Oh yeah, there was also some to-do about Yahoo and stuff. It goes a little something like this: In an effort to forestall a shareholder revolt and growing signs of irrelevancy in their core market Yahoo attempted a Doug Henning like slight-of-hand, ”Don’t look at Microsoft rapidly backing away from our company over here when presto! It’s a deal with Google!”

Initially the rumor mill had built up expectations for an earthshaking deal but the actuall news seemed more like a damp squib — Yahoo has entered into a limited advertising partnership with Google. Ho-hum. Upon further reflection however this “limited” deal, designed in such a way as to seem benign to regulators by being non-exclusive, is a veritable Trojan Horse allowing Google to possibly control nearly 80% of the search market.

Monopoly Beauty Contest

Yahoo and Google have taken pains to argue that this is not the case, after all Yahoo still controls display ads and has the right to pick and choose the Google ad content they desire. Google has also made it clear what big fans of competition they are, at least when it came to the prospect of Microsoft taking Yahoo off the table. Here’s Google CEO Eric Schmidt’s quote: “We think an independent Yahoo is better for competition, for innovation and so forth,” Yes, and so forth. He did refrain from saying “Yadda yadda yadda…”

The fact is Google is very successful and effective at what they do. As Yahoo finds an increasing amount of their revenue being driven by Google’s ads they will also find themselves beholden to their stockholders to ratchet up the presence of those ads substantially. Google gets to flip one of its largest competitors into an extension of its existing network. The end result is less competition, and less of the innovation that the entry of Microsoft into the search market had fostered.

Yahoo is also left without a strategy going forward. They have essentially done a face-saving version of what Microsoft was offering – jettison the search business. Reprise Media’s Managing Partner Peter Hershberg pointed out to me the almost compulsive lengths that Yahoo has gone to in order to hype this tie-up as a convergence of display ads and search. Here’s a choice Jerry Yang nugget from their press release:

“We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry. Our strategies are specifically designed to capitalize on this convergence — and this agreement helps us move them forward in a significant way.”

It’s hard to see how this is furthered by splitting the search ad platform from the display ad platform. Rather than bringing them together it appears to leave the display part of their business flapping in the wind.

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