Search Wars: The Shifting Landscape in the Battle for Your Queries

Twelve years ago, when Google was handling just 10,000 searches per day, the landscape of online search was dramatically different. While the overall growth of the search engine market accounts for a large portion of their personal growth, Google has grown notably faster than the rest of the market. As of late 2009, Google handles over 250,000,000 searches per day, and represents as much as 70% of the global market share, according to numerous reports. The company name has become synonymous with searching, entering the english language as a verb: (“If you don’t know what a SERP is, Google it!”) However, while Google has experienced explosive gains in revenue, marketshare, and activity, other search engines have not fared as well.

Yahoo! Search and Microsoft’s Bing are considered the top competitors in the global marketplace, but their respective market shares are mere fractions of Google’s. Yahoo! ranks second with approximately 18% of the global market, experiencing steady declines, while Bing accounts for just over 9% of the global market.

Bing has been pitched as a revolutionization of search, marketed to cut out the random results and provide only the most accurate results. Microsoft smartly launched a massive, wildly expensive campaign to promote Bing not as a search engine, but a “decision engine”. Based on early reports and research, the campaign had measurable impact, stealing a portion of Yahoo!’s declining market share. The outlook was still grim, however. Stacking Bing’s 10% against Google’s share of 70% doesn’t result in a feasible competition for Microsoft.

After Microsoft’s disastrous 2008 takeover bid to purchase Yahoo! for $44.6 billion (a 62% premium at the time), both companies were left with a bad taste in their mouths, and heads eventually rolled. Yahoo! founder Jerry Yang was ousted as CEO, and reverted to his role as “Chief Yahoo”, making way for the hot-headed, always-vocal Carol Bartz. With a new leader at the helm, talks between the companies reignited, but Microsoft CEO Steve Ballmer had ruled out a complete takeover. Enter the “MicroHoo” search deal.

With Carol Bartz promising only to deal Yahoo!’s search business for “boatloads of cash” upfront, the company’s stock price steadily climbed in anticipation of the deal. When the deal was announced, however, investors were initially disappointed and slightly confused. The 10-year agreement between Yahoo! and Microsoft called for an integration of Yahoo!’s search technologies into Microsoft’s existing search platforms. Microsoft absorbed a large portion of Yahoo!’s capital expenditure costs, and through their revenue sharing agreement, would provide Yahoo! with a benefit of $500 million in annual GAAP operating income.

Though investors were intially disappointed that the deal did not include the “boatloads of cash” promised by Bartz, causing Yahoo!’s stock price to drop considerably, industry experts realized that the deal provided substantial benefits for both companies. Yahoo! enjoys considerable growth in revenue, with the first 18 months of revenue per search guaranteed by Microsoft. Similarly, Microsoft will enjoy a large boost in market share, allowing the two companies to more feasibly compete with Google. Together, they represent nearly 30% of the overall search market. Many assert that 70-30 competition is much easier than 70-10 competition.

The deal is still in its early stages of implementation, but Microsoft has already begun paying Yahoo! for use of its search technologies. As the partnership matures and the full effects are understood, we may witness a powerful shift in the complexion of the search engine market. For now, however, Google remains the sole dominant force, enjoying the blessing of techies and pop-culture heavyweights alike.

What do you think about the MicroHoo deal? Legitimate competition for Google?

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About Michael Dossett

Inactive since Sept. 2011

Posted on March 28, 2010, in Uncategorized and tagged , , , , , , , , , , . Bookmark the permalink. 2 Comments.

  1. I know this is a bit old, but given the fact that yahoo is reporting earnings tonight, it is pretty relevant. I wonder if the partnership with MIcrosoft is paying off, and if not, what happens next? Will carol be canned?

  1. Pingback: Are the Yahoo! Layoffs a Good Sign? |

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