The Seattle-Search.com Blog

Microsoft has made it clear that it  would borrow at least part of the funds to make the gargantuan shareholder payoff to acquire Yahoo Search in what has been presented as a “half-stock, half-cash” deal. Analysts are already sharpening their pencils to calculate the kind of ROI that Google Analytics might report for the CPA (cost-per-acquisition) of the transaction.

In December of 2007, Google owned a 68.1% market share on daily search activity. Microsoft’s MSN and Live search owned 9.1% market share and Yahoo! 17% in the final month of the year. Ask market share and search volume has continued on a gradual decline.

During the last four quarters, Microsoft’s revenues for its online services (MSN, Windows Live, aQuantive, etc.) were $2.8 billion and it lost $949 million.  Combining Yahoo’s revenues with that business, you get a combined sum of $9.8 billion, but Microsoft would still show a net loss for that business of $289 million.

Ventures like Yahoo! Mail and Yahoo! Finance, are extremely successful and boast loyal followings. But Yahoo! Mail faces stiff competition from Gmail and Microsoft’s Hotmail, one of which will be compromised by a consolidation. Yahoo’s  financial site also faces challenges from News Corp.’s recent decision to free WSJ.com. Yahoo! Personals is one of the largest online dating sites, but user-driven platforms on Facebook, MySpace, and even Craigslist will gain market share in the matchmaking world over the next few years.

According to comScore, traffic spent surfing through Yahoo!’s site dropped 13% this past November, year over year. Microsoft’s MSN properties also saw a dip of 5%, but Google proved resilient, increasing 116%.

Microsoft fired the shot heard round the Search world last Friday when it bid $44.6 billion for the search assets, index and eyeballs of Yahoo, Inc.

The outrageous price tag to acquire the search industry’s beleaguered #2 search engine has been both lambasted and lauded while inviting potential White Knight potentates into the search engine arena such as Apple and NewsCorp.

Given Yahoo’s stagnant PPC system (formerly known as Panama) and Microsoft’s sophisticated challenger (formidably known as adCenter), the purchase comes down to brand, traffic and audience CPM. Yet Microsoft’s history as a brand-builder beyond Windows (an Apple/Xerox clone) has been dubious (most recently the name recognition of MSN Search was shelved for Live Search! (and we won’t go into Sidewalk, Bob, or Zune!)).

Google’s Chief Legal Officer David Drummond weighed in promptly on the marriage proposal: “Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies - and then leverage its dominance into new, adjacent markets,” he wrote.

“This is a lot like the replay of the marriage of Compaq and Hewlett-Packard, where the idea seemed good but took years to play out,”  wrote DeanTakahashi in the SJ Mercury News.

And yet, who among us would deny that Google’s dominance in online Search has reached hegemonic proportions or that only the magnitude of a Yahoo-Microsoft alliance provides the necessary counter-balance to Google’s runaway expansion?

One thing is for sure. This deal is going to take a lot of time to come together, Merging the various teams, each fiercely protective of their patches,  will be a long, traumatic affair.