Yahoo Got Binged

Today, Yahoo died as a search engine. If the deal with Microsoft is approved, what will replace it will be Bing, the search engine that Microsoft launched only two months ago. Within a few months time, Microsoft will go from owning 8 percent of the U.S. search market to 28 percent (comScore). That is still less than half of Google’s 65 percent, but it could give Microsoft a fighting chance in the search wars against Google.

While the agreement was a long time coming, Bing was the cherry on top, so to speak. Earlier today, I spoke with the two executives who oversaw the negotiations for both sides, Yahoo EVP Hillary Schneider and Microsoft SVP Yusuf Mehdi. I asked how big an impact Bing’s sudden success had on bringing the deal to a close. “Seeing Bing as a live experience was a nice assurance,” says Schneider, “but did not change our rationale or timing. This was a conversation that went on over several months. Bing was introduced after we had material momentum in how we wanted to approach this partnership.”

Yet Bing was able to gain market share in its very first month, and it took it from Yahoo, not Google. And Bing is just going to get better. Yahoo faced the very real prospect of market share erosion from below as well as from above. Now in one fell swoop, Microsoft will control all of Yahoo’s search volume. In a conference call today, Steve Ballmer explained how important market share is in search:
Do we think we will have better algorithms for relevance? Yes we do. There is a feedback loop in search. the more searches you serve, the more you learn about what people click on. Scale drives knowledge. There is a return to scale from seeing that much activity [that is more] than Yahoo or MSFT see independently

Microsoft will measure the success of this deal in two ways: increased market share with advertisers and increased market share with consumers. When I asked Mehdi what success would look like a couple years out, he defines it in terms of “shares of queries and spends.” Even before mentioning gaining share with consumers, he says: “Success is a smooth transition for advertisers as they shift more share of wallet from traditional media and competitors to get the better ROI.”



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