After months and months of Yahoo fighting a takeover bid by Microsoft, Yahoo and Microsoft agree on a search deal: Among other things Yahoo will integrate Bing search results into its properties and Microsoft will share 88% percent of resulting ad revenues with Yahoo.
There’s more to the agreement than this, but the essential point is that Yahoo is trimming down its search efforts. I guess you could argue that the core DNA of the company was never really search, but rather an archived Internet directory. In other words, you might argue that access and storage are the two key elements of Yahoo. Whether its links (as it was originally), or later emails (Yahoo mail), or images (Flickr), you still see this access and storage trait. That being said, I’d think that search would still be quite crucial for Yahoo’s users. However, the world of business and engineering being what it is, search really has languished for Yahoo, so switching to Microsoft’s Bing kind of makes sense. At least it can be managed not as a primarily engineering effort, but rather a primarily business effort. What COO wouldn’t like that? What about the engineers? From what it sounds like, many of the most entrepreneurial ones have moved on. That’s not to say there aren’t a lot of star engineers remaining at Yahoo, but I think what this search deal makes clear is that Yahoo is transitioning from a startup-biased engineering company to a more managed-minded entity. I’m not saying engineering is dead at Yahoo, just that I’m predicting a more mature process that may turn off some and attract others. A transition like this is often part of the evolution of companies as they try to tweak another 10% profit here and there.
So who is the winner? Yahoo? Microsoft? Google?
Actually, I think neither Google, nor Microsoft, nor Yahoo, is the winner with this particular deal going forward. I think the market has spoken for this round of competition, and Google won. There’s nothing Microsoft can realistically do at this point to change that.
Now as to the next round?
I think what this business-oriented deal signals is that we’re now in the land of business-minded optimizations. That suggests that the door is now clearly open for some engineering-oriented external-party to shake things up and we’re going to have some new, compelling use of search, or whatever, that people just can’t live without and whoever provides this will be the winner of the next round.
There are several forces going on here. Key among them is the PC market melting into the device market which in turn is enabling and inspiring changes in the search and ad markets. Whether its new form factors, new users, new verticals (such as education or healthcare), or simply some new, unexpected events, change is not only inevitable, it’s pretty much being asked for–quite simply in order to be an alternative to what now appears to be established–that is two competitors: Google and Microsoft.
That’s the nature of things. That’s who is the real winner here.