Microsoft, Yahoo in 10-year Web search partnership!

Microsoft, Yahoo in 10-year Web search partnership !!

SAN FRANCISCO/SEATTLE (Reuters) - Microsoft Corp and Yahoo Inc inked a 10-year Web search deal to challenge market leader Google Inc but stopped short of combining their display advertising businesses.

The long-expected deal effectively means Microsoft's new Bing search engine will be combined with Yahoo's experience attracting advertisers to pose the first serious threat to Google, if the companies get regulatory approval and can make the partnership work.

Putting an end to 18 months of heated speculation, Microsoft and Yahoo finally struck a deal last Wednesday. According to the Wall Street Journal, the terms provide that Microsoft’s recently launched Bing search engine will be the algorithmic search and paid search platform for Yahoo’s sites, while Yahoo will use its technology and data in other areas of business, including enhancement of display advertising technology. Yahoo will be compensated through a revenue-sharing agreement on traffic generated on Yahoo’s network of both owned and operated as well as its affiliate sites.

As a result of the agreement, Microsoft will capture almost 20% of the global share of the search engine market, a number that gives the software behemoth greater leverage in its battle with Google, which possesses a commanding 61.6% of the global search share.

Though merger talks appear to be stalled for the moment, a potential Microsoft/Yahoo deal would immediately produce a combined competitor with a market share larger than the separate parts, Internet analysts say.

"Overnight, MSN and Yahoo's market share doubles," says Chris Winfield, president of 10e20, a New York firm that helps businesses set up search marketing campaigns. "They still aren't as strong as Google, but they are healthier together than apart."

No matter how you look at it, news that Microsoft is hoping to acquire Yahoo! isn't good news for Google.

Sure, Google remains the best search engine in the world and a profit-generating behemoth. (I actually heard a Google executive from California joke last year in a speech at the University of Michigan that Google AdWords is like "printing money.")

But I have to admit: I was amazed by how many people continue to believe that Google will forever dominate the market. Some people are acting like a Microsoft-Yahoo! merger wouldn't hurt Google at all. And they may be right.

But you're making a mistake if you refuse to recognize the power Yahoo! could generate in a partnership with Microsoft.

Justin Rogers of Ann Arbor-based Dynamic Edge said Google doesn't have much to worry about for now. But he said Yahoo! has "millions and millions" of users who can't be ignored.

"Microsoft has never really done the search engine thing very well, and the online services thing very well, and Yahoo! would bring them a lot of technologies as well as a proven household name attached to those services," Rogers said.

There's no doubt that Google has the best search engine - and Ann Arbor, which hosts Google's AdWords headquarters, clearly has an interest in Google's continued health.

But while Google's market share in search queries is significant, it is by no means insurmountable.

Experts once thought Microsoft would never lose its dominance in the word processing, spreadsheet and digital presentation business. Microsoft had a stranglehold on the market, with estimates of market share above 90 percent.

Now, however, analysts are suggesting that online word processing and spreadsheet programs pose a realistic threat to software stored on your hard drive.

Market share in digital technologies can evaporate.

Google's share in the search business is significantly less than Microsoft's in the word processing market.

According to Internet ratings firm comScore, Google hosted 58.5 percent of searches in January. Yahoo! hosted 22.2, while Microsoft hosted 9.8.

Google's numbers are increasing, but Yahoo! isn't going anywhere.

Yahoo! is a powerful force in online services. In January, Yahoo! hosted more searches than Craigslist, AOL, Amazon, eBay, Fox Interactive Media and Facebook combined.

I'm not biased toward Yahoo! - and in fact I hardly use it at all. I use Google's search engine, Google Documents, GMail, YouTube, GOOG-411 and several other Google services.

But all of these have flaws. YouTube can't make money, Google Documents has few frills, and GMail has a limited amount of storage space - albeit much more than your work account. Yahoo!'s mail client, meanwhile, has unlimited storage space.

Google has more than twice the search queries as Yahoo. But Yahoo! has three times as many e-mail users as Google, according to respected blog Techcrunch. Yahoo! has 254 million e-mail users; GMail has 84 million.

Yahoo! has a broad network of fantasy sports leagues, a variety of online games, a news-producing arm and other services.

If an emboldened Microsoft-Yahoo! team were to, say, successfully acquire Facebook, the media would place a crown of digital relevance on the company's business plan.

Google offers better technology than Yahoo! - for now.

But Microsoft and Yahoo! are not to be ignored.