Yahoo and Microsoft Impact

I’ve stayed clear of reporting on the Yahoo and Microsoft merger until now, because I wasn’t convinced it would happen. Recent events have changed my mind so this becomes a big issue, and should for any online marketer.

I see the two giants coming together because of a recent war of words between Carl Icahn and Yahoo. Icahn, a large share holder in Yahoo has begun pushing for the ousting of Yahoo’s board of directors and Microsoft has essentially backed the effort saying they won’t further negotiate with the current Yahoo powers that be and can kiss their $33 per share offer good-bye. Because of Yahoo not being very transparent or well understood in the handling of the company, I see the current management loosing the PR battle, being ousted in a shareholders’ meeting, and Yahoo moving toward an awkward merger with Microsoft. (Guess I am going all-in on this one)

What this means to advertising

First and most telling, a slow combination will take place where Microsoft’s ad network will merge with Yahoo’s. While being a software heavyweight, Microsoft has never been successful in the online sphere. Yahoo’s impact has been much greater, and putting the two together would seemingly create actual competition for Google (if not a strange marriage of ideology and methods).

For many, competition is a good thing. It creates lower prices and innovations which help consumers and the rest of the world who need a certain product or commodity. Many feel the same way about Google.

I agree that usually having options does help, but marketers do have options now, with Yahoo many times giving a better ROI, but less revenue, than Google. Prices are also less expensive to jump into the online marketing pool when compared to the CPC rates on Google Adwords. Finally, competition is best between several players, not two. If you need proof, see the Cold War, aka United States vs. Soviet Union. This type of stare down didn’t produce many good results. You need multiple players to create real innovation and competition (see NBC-ABC-CBS, Ford-GM-Chrysler, Honda-Toyota-Nissan, etc.)

It’s difficult to scope out the next 1 to 2 years after this deal is consummated, but it sure makes 2009 into a crucial year for Google and Microsoft’s long term advertising prospects.

Encouraging Innovation

A lesser immediate result, but perhaps more impactful long-term consequence will be trickle down effect within the internal ranks at Yahoo. For a long time, Microsoft has been seen as an evil entity by Silicone Valley. With Microsoft spreading it’s blue grasp over Yahoo, many idealist and innovative personnel will leave the company (including Jerry Yang of course) and move on to other ventures simply because they disagree with Microsoft’s culture and past ways of doing business.

This exact scenario unfolded when Microsoft took over Netscape. With Netscape essentially being brought to a halt, some talented people took the remnants and began building…Firefox. Over the past few years, Firefox has been steadily eating into Internet Explorer’s dominance so now there is a legitimate rival browser available. Working with a relatively small workforce, Mozilla’s Firefox is one of the great success stories of bringing together a lot of ideas from inside and outside a company to build what is becoming a superior program (at least when you look at the add-ons available).

So the net result will be change. I would expect massive innovation, but surprisingly the bulk of long term creation may come from the spin-offs and not the mega players involved. Online advertising will prosper, but the path will most definitely change. (Hey Facebook, you listening?)

July 8th, 2008