Thoughts on the Microsoft and Yahoo! search deal

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Some thoughts on the recent Yahoo! | Microsoft deal. I think that Jason Calcanis put it much more succinctly than me, but I wanted to expand on some of the impact points:

Yahoo! was playing from a weaker hand –

  • Prominent board members like Carl Icahn have wanted a deal with Microsoft for a while, any deal with Microsoft
  • The Dept of Justice action against a Google | Yahoo! deal basically gave Microsoft a monopolistic position in its dealing with Yahoo!
  • Come 18 months time even if Microsoft walks away from the Yahoo! deal, Yahoo! will be out of the search game. It would take too much resources and efforts to get back in
  • Carole Bartz obviously only has a very short-term vision in mind for Yahoo! because deal could leave them on the beach in 18 months.
  • The proof of the weak hand was that despite Bartz’ paper tiger ‘boatloads of cash‘ bravado she left the table with no upfront payments, yet will still have to deal with surplus data centre capacity and complex organisational change to accomplish

There is a good chance that the deal will not be good for either party –

  • Yahoo! over the next two years will be replacing its search with results from Microsoft | Bing. I have found Bing to be a poorer experience providing less relevant and fresh results than the current Yahoo! search. A poorer experience will be only good for Google
  • Bing is only making a fraction of the money per search query that Google will be per search query and yet have to scale up to deal with three-times the search queries it currently handles
  • Yahoo! will struggle to get traffic to other Yahoo! properties, search had previously provided that functionality
  • It will be more difficult for Yahoo! to keep its BOSS programme going in the medium-to-long term
  • At the present time Microsoft adCenter doesn’t have the same international reach that Yahoo! Search Marketing has, unless this is dealt with fast, Yahoo! will become even less attractive as an international search advertising destination

The deal is good for Google and for non-search start-ups –

  • Yahoo! holds many of the pertinent patents that related to vending adverts against search results. These won’t have fallen into the hands of Microsoft, which would have been the case with a Yahoo! acquisition. This is good news for Google
  • The chaos and mayhem that comes from a project that Yahoo! and Microsoft will undertake will blunt their ability to compete for quite a while
  • It is a great time to further deepen their bench of talent by harvesting the best engineers currently still at Yahoo! Search and Yahoo! Search Marketing with experience in cloud computing, open source, scripting languages, databases
  • Many of the search developers at Yahoo! have experience primarily within open source tools and won’t find Microsoft as an attractive environment to work in as their skills will have to be rehoned so the talent may be lost to both companies

The deal has the potential to stifle innovation in open source distributed computing, search start-ups and the internet software eco-system –

  • Yahoo! has been one of the main supporters of the Hadoop project for distributed computing over the years. Primarily because it is a great way of handling the huge indexes involved in a search engine. This also has applications for other enterprise and consumer cloud computing services. This could be bad for the likes of Amazon web services, IBM and good for Oracle (since its grid RDBMS is the next best, though very expensive option to Hadoop) Google (with its MapReduce technology) and Microsoft’s HPC offering
  • From PC manufacturers to software providers like Adobe and Nero, browser toolbars and settings favouring a particular internet search engine has been a lucrative market. The main players in this space have had their ranks thinned out, how should Yahoo! bid against Microsoft on these deals?
  • Search-related start-ups which in the past ranged from delicious and flickr due to their tagging and surfacing to their surfacing of great content through to semantic search engines like Cuil and Powerset now have less opportunities to be acquired. Ask effective ran the white flag up the pole a long time ago and now Yahoo! will be retreating away from the space leaving only Microsoft and Google as potential suitors