MS and Yahoo have entered into a deal to beat Google. While the details are not completely clear to me, it seems like MS will essentially use the Bing architecture to power Yahoo searches. Consequently, the two cos will end up sharing revenues with Yahoo retaining ~90%.
Lets see how this will play out. Everytime you search for something on Yahoo, it is actually Bing that does the search and delivers the results. Now, search-based advertising means that ads will be automatically displayed based on search strings. So that will be done by Bing too. And of the revenues earned, Yahoo pays 10% to MS.
The only thing Yahoo had going for it is the #2 position in search and the resultant reveues from ads. That advantage is now erased 'coz it will depend on Bing to make money. I doubt if the agreement will restrict MS from competing in the ad space. So now MS gets to make its own ad money and also get money thru ads on Yahoo (although only a small %). But thats not the point.
The point is MS gets a much larger canvas to play on. The Bing "search system" will be used at least 4 times more than if Bing remained a standalone search engine. And all this data is available to MS, which means it can make Bing that much better. And once Bing starts getting better, and word spreads that Yahoo is actually "Bing", surfers like you and me will start searching on Bing directly rather than Yahoo (Some will go to Google, but hey, if they are still on Yahoo, they are probably gonna end up with Bing than Google). Consequently, Bing's market share will improve at the cost of Yahoo's, resulting in movement of customers from Yahoo to MS. Once Bing reaches a critical mass in the next 3-4 years, say 25% market share (standalone), it may damn well pull the plug on the deal. In all probability, Yahoo would have stopped work on its search platform and would be left stranded. Meaning all remaining Yahoo customers will drift to MS or Google.
My feeling is MS couldnt have asked for a better deal - it gets to kill Yahoo, although not immediately, but hey, they dont have to pay a penny. Well for Yahoo, it is definitely suicide.
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