360i Point of View on the

Microsoft-Yahoo Search Deal

Overview

Microsoft is effectively acquiring Yahoo’s search business, migrating Yahoo’s search ad customers toits adCenter platform, and licensing Bing’s search platform back to Yahoo. Yahoo will become theworldwide sales organization for the companies’ premium search advertisers, while from an adtechnology perspective adCenter will be the search ad platform and Yahoo’s Panama will be phasedout. Smaller advertisers will use adCenter directly to purchase their search advertising. After thedeal goes into effect, both the natural and paid results on Yahoo’s owned and operated propertieswill come from Bing’s search platform.Below we address a number of the key questions marketers may have regarding the deal, with360i’s perspective on what this means for your search marketing efforts.

How does this affect Microsoft and Yahoo?

Both companies have been wrestling internally for years with their brand identities – to be amedia or technology company. The consolidation of ad sales efforts with Yahoo’s sales teamstrengthens Yahoo’s hand as a media company. By contrast, Microsoft is doing the opposite byconsolidating its technology position in search at the expense of its media sales aspirations.360i’s assessment is that this seems like a smart strategic play by each of the parties to focus ontheir core ambitions and areas of expertise.

How does this impact marketers?

The most obvious impact on marketers is that there will now be two major places to buy searchadvertising, down from the previous three. The upshot for marketers: the

partnership builds morescale and efficiencies in search advertising enabling marketers to take better advantage of Bing’straffic.

This should also allow Yahoo to focus more on sales support, especially for its larger advertisersand agencies. Improved scale and customer support should enable Yahoo/Bing to close the gapbetween their combined consumer search share (28%) and advertising search share (23%) ascompared with Google’s share (65% and 77% respectively), according to the latest comScore andSearchIgnite figures.There is the possibility that cost-per-clicks will go up for some keywords, although increasedrelevancy from the platform’s scale might lead to increases in conversion rates, thus ensuringthat ROI will be better, or at least neutral, for advertisers. Time will tell. Either way, we do notanticipate massive changes, especially given the large duplication of advertisers already runningcampaigns on Bing and Yahoo. We expect advertisers’ ROI should remain strong if they areproactively managing their campaigns. As it relates to SEO, optimization for Bing results willbecome increasingly important.

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360i Point of View on the

Microsoft-Yahoo Search Deal

Is Bing a better search engine than Yahoo?

Bing is unequivocally the best search experience Microsoft has delivered, and it has beenimproving incrementally since its release. Yahoo has continued to innovate over the years, suchas with products like Search Assist that helps refine queries and SearchMonkey that deliversricher natural search listings. Yet Bing has the stronger product, supported by considerablemomentum and growing mindshare. Bing also excels at various specialized and vertical searchfields, such as travel, shopping and image/video search.The real challenge is giving consumers a compelling reason to use an alternative to Google. Thatwill require smart marketing and extensive product innovation. The deal seems to be structuredin a way that will give Microsoft access to Yahoo’s research and development resources, includingits engineering talent. If these resources are harnessed properly, Bing will hopefully evolvefurther to offer the best aspects of both Yahoo and Microsoft’s current search engines.

Could this run afoul of government antitrust laws?

360i is not an anti-trust expert and can’t weigh in on this matter other than to presume that theJustice Department will likely examine the terms of the deal given their recent track record. Wesuspect that there will be two opposing points of view on the matter:1.

Deal opponents will argue that the main players controlling over 90 percent of searchadvertising share is now reduced from three to two, thereby lessening marketplacecompetition.2.

Deal proponents will argue that the partnership creates increased competition by creating aviable number 2 competitor. This argument is based on assessing the current field asbeing made up of Yahoo as a distant number 2 with declining market share and Bing withsmall, stagnant market share.Ultimately, approval may hinge on whether advertisers and anti-trust officials believe thispartnership is pro or anti-competition.

When will this take effect?

No timetable has been set, but it will take quite some time before the deal clears governmentapproval and the two companies can sort through the significant integration issues involved withcombining search and sales infrastructures. 360i’s estimate is that it will be at least Q2 2010 –and more likely the second half of the year - before this partnership takes full effect in the US(and likely 2011 globally).