Analyst: Microsoft deal could save Yahoo bundles

A search outsourcing deal with Microsoft could leave Yahoo with a little more cash in its wallet, potentially up to $1.3 billion more, according to a research report released Tuesday by Jefferies & Co.

With reports that Yahoo and Microsoft are holding preliminary talks to explore a search and display advertising partnership, Jefferies analyst Youssef Squali noted that such a deal could save the Internet search pioneer a tidy sum of money.

The parties could, for example, have Yahoo outsource its search infrastructure to Microsoft, and in turn, Microsoft would outsource its display advertising to Yahoo.

In his report, Squali noted:

Outsourcing the search infrastructure could bring Yahoo incremental savings of $1 billion to $1.3 billion. Finally, any upfront cash from Microsoft (as offered in July) could be deployed by Yahoo for either share buybacks or M&A.

Given the long-term importance of integrated search+display offering, however, we believe Yahoo would need to reserve the right to a) regain full control of its search assets in the future and b) maintain full access to search data in order to improve targeting of its display ads.

Meanwhile, if Microsoft where to split its display advertising revenues 50-50 with Yahoo, that could result in roughly $600 million to $800 million in incremental revenues to Yahoo. During the fourth quarter, Squali estimates Microsoft generated $300 million to $400 million in display advertising.

[Random_Walk]

Did anyone in this analysis actually probe the reasons why Yahoo has a far larger marketshare in search than Live?

Certainly brand recognition can't be it - Microsoft is globally recognized as a name, and their search engine is the default page and tool, on the default Windows browser. In spite of all that boost, Microsoft is behind.

Perhaps if this analyst were to look into the reasons why that is, maybe he will realize that Yahoo outsourcing its search engines to Microsoft would wind up being more headache than benefit.

Also, there's one other thing to consider: Microsoft doesn't play very nice with its partners. IBM, The PlaysForSure group, Toshiba (HD-DVD)... all of these folks thought they could partner with Microsoft, and all of them got burned, hard. Now why would Yahoo want to fall into that same trap?

[monkeyfun14]

Because Yahoo is a dying company and without this I don't see them living 5 more years.

[Random_Walk]

Dying or not, their death would only be accelerated by having their search taken over by a company who has consistently proven that they can't get out of #3 in the search engine rankings no matter how hard they try.

By most credible accounts at the time, Yahoo was supposed to have died back in 2004.

[t8]

Yahoo a dying company jumping into the arms of death. So that is either die or die.

Hmmm.

It's a shame that Yahoo cannot display Google ads. That would save them, given the amount of traffic generating from their many web properties.

[theteofscuba]

I would think it would be most benneficial for microsoft to aquire full rights to yahoo's search server and related software. Also, giving Microsoft the option of purchasing all the computer hardware that currently runs yahoo search, since they were in the past planning to buy the entire company anyway. Allowing Microsoft to take ownership of the NOC in which yahoo search resides may force microsoft to foot a bill, so some effort would have to go into making sure microsoft is only paying for search servers and not some misc servers that yahoo squeezed into the same data room leeching off microsoft who would be paying the electricity bill for the hardware in the NOC.

[jtjt145]

Micro$oft and partnering ... yeah, that will go down well!
The boys who have been holding the world to ransom with their mediocre-ware for the last 20 years or so, I am sure they will be good partners, the partnership somehow resembling the loving relationship between a python and a chicken with the action script somehow like:
AAHHRRGG .... CRACKLE ... SLURP ... DELICIOUS

[flickrz]

LOL

[monkeyfun14]

Wow thanks for wasting my bandwidth with your idiocy.

[JCPayne]

True but who will use it? Currently Yahoo is using a mix of Google I think... MSN search is horrible.. It is like Yahoo's Altavista in this day and age...

[JCPayne]

Microsoft want's Yahoo's Overture.com business as well. Hence why they want to get rid of Yahoo competing against their products. Microsoft only leads when they get rid of the competition.

[monkeyfun14]

Yeah i'm just sure thats what it is...

[t8]

Yes monkey, that is what it is.

[Ni_Hao]

Microsoft Live Search just isn't very good. It gives more false hits than good ones in the few times I have tried. There's just no point in using it. They must hire the wrong minds for that type of work. But unless you have a specialized need, with a custom target audience, there's not much point in going outside Google. At least that's the way it seems for me. Microsoft dodged a bullet when Yang held out. That may have gone down as the worst business acquisition blunder of all time.

[t8]

Yes, it makes you wonder if Google should have stopped that deal. They might have been better off fighting a evil behemoth with debt, too many products, and not enough synergy.

[FutureGuy]

@t8 "a evil behemoth with debt, too many products, and not enough synergy"
"behemoth with debt", I am gussing you are talking about IBM or have no clue.

[Michael_Martinez]

Yahoo! does NOT have a larger search market share than Live. Compete, comScore, Hitwise, and Nielsen all use obsolete metrics to measure search market share.

According to publicly available data from Quantcast and Compete, 100 million people use Microsoft's Live Search properties every month. Far fewer people use Yahoo!'s search properties.

Furthermore, it makes no sense for Yahoo! and Microsoft to combine search technologies. Advertising networks, yes. Organic technologies, no.

History has shown repeatedly that when two search engines combine technologies one of the brands fail and the other loses market share.

It is absolutely insane for any "analyst" to be suggesting that there is good reason for Microsoft and Yahoo! to combine technologies. Consumers would lose, marketers would lose, and only Google would benefit from such a union.

We don't need to hand market dominance to Google by encouraging Microsoft and Yahoo! to make a stupid decision. Google's real market share is currently under 40%. If you take either Microsoft or Yahoo! out of the picture Google's real search market share will shoot up to over 70% within a year.