Did Microsoft really cost itself 30 Billion dollars a year?
Yes, you read the title of this article correctly. I said it. Yahoo wins in this deal, and they win big. And further more… I’m going to tell you why they win.
Jason Calacanis famously says often as he can, that search is a one billion dollar per percentage point business. Thus Microsoft now holds roughly 30 percent of the search market. And while he quickly jumped out to write his blog post “Yahoo committed seppuku today”, he and others like him completely missed why it is Yahoo that wins in this deal.
Why is search a billion dollar per percentage point business? Because of one thing… Advertising.
CPM and CPC… Cost per impression and cost per click advertising is much higher on search than on yours or mine websites. Reason being, it’s targeted advertising based on something the individual searching is already looking for. People tend to click on those ads a much higher click-through rate. In fact, at almost 2-3x more often. So that said, Jason is right in saying that the Google model of search business is a billion per percent business. And while Microsoft now gains market share, they in effect shoot themselves in the foot for nothing more than the namesake of a title as the number 2 search engine in a business that is transcending into different venues.
While many are singing that Yahoo has in effect signed off on it’s own death notice, I’m here telling you that while they might still go into the dark at some point, this deal saved their company. And here is how… Overlooked in this deal is one BIG and key aspect. Yahoo now has all the advertising on the Bing search results. No longer do they have to do all the grunt work and deliver the search results to make the dollar, they can now sit back and just sell ads. And they now have a larger network to do it on. Merging the search engine with Microsoft expands the amount of ads they can sell. And based on Mr. Calacanis’ own theory, Yahoo just in effect boosted their revenue off search to 30 billion dollars a year.
With search moving in different directions, Yahoo might have been smart to get out now. With web sites and services such as Twitter or Google News, people are now being search specific. Looking for trending topics and certain items. In Twitter’s case, they even want to be told what to search for based on those trending topics that before visiting the site might have otherwise not even known was an issue to be interested in to begin with.
While everyone was quick to bash Yahoo CEO Carol Bartz, one thing they forget is that she has a successful history of being an efficiency expert and making her companies turn a profit. By shedding the biggest asset that Yahoo owned, it’s search engine. She in turn might have delayed the inevitable or even helped Yahoo turn a very dark corner towards the light. Now Yahoo is no longer a search company, it is completely an advertising company.
An advertising company with a 30 percent market share of the search business that it no longer has to push and maintain. Thus shedding overhead and employee costs. Redirecting those employees into a marketplace that is bigger and more capitalized. It’s advertising on search that is really the billion per percent business model. And while we all know Microsoft still can make some revenue off the search through paid placement of results, they lost the 99 percent of revenue off those results.
Google is famous for this. They became the trend setter for search, but they are not a search company, they are an ADVERTISING company. And they set the business model for others to copy. Yahoo can now capitalize on this. Microsoft gets the search, Yahoo gets the advertising. This isn’t even the first time Yahoo has famously given up on their own search, it was Yahoo who helped launch Google into the world we now know with it’s search engine powered by Google at one point before Google then launched out into it’s own mega-sphere.
While Yahoo still has many many faults and issues, mainly its content delivery. It’s Launch music portal could use some major upgrades, and its clearly wasting its best assets in Flickr and del.icio.us. But that said, their revenue stream just took a turn to the better. Even flickr and delicious might be better search businesses than general search at this point anyway. Flickr is the number 1 image search engine and delicious with bookmarking and social sharing. So that begs the question… Did Yahoo even lose anything at all? Did they gain 100%? No, but they lost a little and gained a business again.
With Yahoo now expanding its advertising to Bing, it now becomes the solid number 2 in its own right to Google in the internet advertising game. And now Yahoo can stand up and compete. Ms. Bartz I stand up and applaud you. You might have just saved Yahoo.