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It is a sign of the how things have changed that I am able to describe Microsoft as the “Little One” but in the search game, that is exactly what they are. Yesterday’s announcement of the Yahoo/Microsoft search deal sees Microsoft move up a place in the pecking order and Yahoo Search rolling out of the bed.

From a paid search perspective this is good news. Come early 2011 we will no longer have to deal with one very clunky to administer system with a reasonable-sized audience (Yahoo Search Marketing) and another rather better put together system with a very small audience (Microsoft AdCenter). Combining the audience should start to give Microsoft the profitability to improve their systems and hopefully (and it is still far from a certainty) give Google a run for their money.

It seems strange to say that fewer players in a market is good for competition. However when you have one player that is so far ahead of everybody else, the prospect of a duopoly is so much more appealing than a monopoly.

Whilst Yahoo! spent some time talking about increased spend from Fortune 1000 companies in future years, they seem to miss one of the important impacts this deal will have. By decreasing the friction (i.e. cost of management) to get to their audience share, the combined offering will become viable for those advertisers operating in very niche spaces. On their own, these advertisers, may only spend a few tens of pounds a month. However, as Google knows only too well, they collectively add up into one of the largest revenue streams in the advertising world.

The down side to the deal is that click prices will likely go up. This is less of a problem on those phrases that are already highly monitised as they will have already achieved some sort of equilibrium. However the “long tail” phrases are more likely to see price increases.

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