Ad agencies stump for Microsoft-Yahoo search deal
An advertising industry association--backed by four of the world's largest ad agencies--sent a letter to the Department of Justice Monday endorsing the Microsoft-Yahoo search deal, saying it "enhances competition."
Four major ad agencies would like to see the search deal signed by Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer come to pass.
(Credit: Yahoo/Microsoft)American Association of Advertising Agencies President and CEO Nancy Hill posted the open letter Monday, which was also signed by Maurice Levy, chairman and CEO of Publicis Groupe; Martin Sorrell, CEO of WPP; Michael I. Roth, chairman and CEO of Interpublic Group of Companies; and John Wren, president and CEO of Omnicom Group. "We believe that Yahoo and Microsoft's proposal to combine their technologies and search platforms is good for advertisers, marketing services agencies, website publishers and consumers," they said in the letter.
The pending deal between Microsoft and Yahoo that would see Microsoft become the exclusive provider of search technology on Yahoo's Web sites will require regulatory approval to move forward, because the government tends to take a closer look at any deal that involves two of three major players in a given industry joining forces. Some have argued that the high barriers of entry in the search market might lead the DOJ to consider restrictions on the deal, such as the sale of Yahoo's search technology to a third party.
Advertisers, however, like the deal because a combined Microsoft-Yahoo search product has the potential to serve as a powerful check on Google's dominance of that market. More money is spent on search advertising than on any other form of Internet advertising.
"A healthy, competitive market for search and search advertising is crucial to the Internet's future," the advertisers said in the letter. "As leading members of the advertising and marketing services industry, we urge the Department of Justice to bring its antitrust review to a speedy conclusion. This proposal enhances competition, and should be allowed to take effect as soon as possible."
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
Translation: 'Now we won't get laughed at as much by Google whenever we try to use Bing or Yahoo as a cudgel to beat down the prices that Google charges.'
Otherwise, what kind of twisted logic says that two main competitors are better than three from a customer perspective?
...and about:
"the high barriers of entry in the search market."
Err, the entry into a search market is pretty easy to do:
1) build an algorithm that's worth a damn
2) build an interface that's worth a damn
3) host it somewhere and make sure you plan for growth.
Seriously - how do you think Google got to where it is today? After all, it was turned down by Microsoft and/or Yahoo when Yahoo and MSN were the top dogs, and they started out on their own.
1) Yes - one prime motive for advertisers to back this deal would be to use it as a bargaing chip with Google - true.
2) Otherwise -- here's the reason two main competitors is better than three -- because otherwise, if you pick the 2nd or 3rd guy, your ad only get visited by 10% of web users. 20% of web users (yahoo + bing combined share) is still small -- but it's more credible a target than the individual shares.
3) The entry into search is not at all easy:
- Google has become completely synonymous with search. No matter how good your algorithm might be, it can't do a thing if people are still searching on Google.
- Same case with the interface
- Same case for growth (scalability). In fact - you don't seem to appreciate the effort that goes into scaling a search engine. The dynamic, distributed fault-tolerance aspect (i.e. when some nodes in your cluster go down, they are automatically, and seamlessly taken out of rotation and re-introduced when they come back up). The storage problem (cost effective storage for petabytes and more of indexing data that has to be available at millisecond latencies). The logging data (processing petabytes of daily logging data that has to be fed back to your seeding / indexing algorithms to tune the results) -- in this case, the challenge pertains both to the volume of data and to the efficient / distributed / fault-tolerant processing of this data.
And to your last point -- Google were your proverbial black swan. Until Google arrived on the scene, everyone used *metadata* (embedded in HTML meta tags) to populate their indexes. Google's plan was to use reference counts (how many times a page is linked from other pages on the net) as their primary ranking factor. Nobody had thought of doing that before, and the superiority of their method is what made people switch over. Whatever minor tweaks you might do, good luck making a similar improvement on Google's algorithm.
The 'reference count' idea had been implemented well before Google, most notably at Infoseek. Soon enough webmasters simply traded links with each other to game the system. Google introduced the notion of 'page rank': links from highly relevant (important) sites carry more weight than other links.
@Random_Walk:
If you think the barrier of entry to search is that small, you should enter it yourself. Last I checked, Google needed something like 500,000 front-end servers just to handle queries. How are you going raise money to compete with that? Just procuring & deploying that many servers alone seem like a mighty high entrance barrier for a startup.
Look at cuil... they were the #1 funded startup last year, staffed by top ex-Google algorithm gurus, and where are they now? Their traffic isn't even in the top 10,000 sites according to Alexa.
Also, there's an old war strategy called 'divide and conquer', which explains why Google likes having many weak competitors rather than few strong ones.
I just can't see Microsoft ever doing anything like that. They are way too selfish.
Although I think monopolies generally pose a risk to consumers, I think Google has been responsible with their dominant position.
Remember that Microsoft is a convicted monopolist. The last thing we want is to have them enter this market as a big player and see more abuse.
Microsoft has a way of starting business that never make a profit, but just hurt the established market.
Think of the Xbox.
- by Michael_Martinez October 21, 2009 10:54 AM PDT
- Random_Walk, you're right on the money. The Microsoft-Yahoo! deal only promises to increase traffic acquisition costs for advertisers -- pretty much what Ballmer said. The advertising agencies who support the deal would therefore stand to see increased revenues because their commissions are percentage-based. They don't have to increase their percentages when the advertising they sell on two low-priced networks becomes more expensive in one combined network.
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(11 Comments)The reason why Google's "market share" is so high is that the metrics companies (Compete, comScore, Hitwise, and Nielsen) don't actually measure SEARCH or search-related traffic. They're measuring page views, which Google inflates by leveraging its own content into the search results it serves. Microsoft and Yahoo! could increase their "market share" by this bogus metric by following Google's lead and leveraging their content better.
Of course, Microsoft is striking deals with other companies, apparently scoring a coup over Google with its deal to carry Twitter data (announced only today). People really are using Microsoft search more now because more people are now using Microsoft search.
There is nothing consumer-friendly or advertiser-friendly about the Microsoft-Yahoo! deal. Microsoft will basically drive a competitor (Yahoo!) out of the market without actually having to compete.