If Microsoft acquires Yahoo, the search engine ad market could gain a viable and sorely needed competitor to Google, but only if the post-merger integration is done with speed and precision.
That's the opinion of several search engine marketing (SEM) firms with experience helping clients design and manage campaigns on the Google, Yahoo and Microsoft search ad platforms.
As things stand now, Google has an overwhelming dominance of this market thanks to the massive popularity of its search engine, which gives its ads a wider and deeper distribution reach that dwarfs that of Microsoft and Yahoo.
Inevitably, most search ad budgets are devoted to Google campaigns, but advertisers would benefit from a more balanced competitive environment in which an alternative ad platform isn't discarded as an option purely on the basis of its limited reach, those interviewed said.
"We feel that a successful acquisition and integration of their [Microsoft's and Yahoo's] offerings offers the potential of forming a credible competitor to Google," said Noah Elkin, vice president of corporate strategy for digital marketing firm Steak Media.
This is important, especially now that Yahoo may outsource its search advertising business to Google. "The dominance of any one company in a given area is not good for the industry. We believe that competition is key to delivering value to advertisers," Elkin wrote via e-mail.
Search advertising is the largest segment of the overall online ad market, accounting for about 40 percent of spending in the U.S. last year, according to IDC. Google nabbed almost 80 percent of the about US$10.2 billion spent in search ads in the U.S. in 2007, followed by Yahoo with about 12 percent and Microsoft with 6 percent, according to IDC.
Anna Sebestyen, a freelance search marketer, works primarily with small and medium-size clients whose search ad budgets are smaller than those of large companies, so the opportunity to give Yahoo and Microsoft a shot at clients' campaigns is more limited.
"I give a chance to MSN and Yahoo whenever I can to see the specific reaction in a certain campaign, but my tests so far have shown that my clients' money is better spent, ROI is higher -- with the limited budget they have -- on Google, currently," she said via e-mail.
Interestingly, some SEM experts have found that Microsoft and Yahoo sometimes do a better job of targeting search ads than Google, especially in certain industries. This has been the experience of Nick Stamoulis, president of Brick Marketing, and so he's hoping that Microsoft succeeds in acquiring Yahoo and creating a search ad business that can compete in distribution volume with Google.
On the other hand, he's not enthused with the possibility of Yahoo outsourcing its search ad business to Google. "This would increase the costs for everyone. I don't think this would be a good move for the Search Engine Marketing and Pay Per Click industries," Stamoulis said via e-mail.
Others, like Jon Pape, an Internet marketing specialist at Meijer.com, think Yahoo should remain independent because it has the talent and resources required to make a run at Google.
"Best case scenario would be for Yahoo to unify all their Web assets under one brand, stop playing catch-up with Google and come out with some innovative technology that advertisers find useful, and attract more users. Buying Yahoo will get Microsoft more user data, consumers, and eyeballs but I think the purchase will hurt innovation and consumers in the end. Having three large search firms fosters innovation," Pape said via e-mail.
Google, with its dominant position, has gotten complacent, creating the opportunity for competitors to get advertisers' attention, he said. "Google made it easy for advertisers of any size company to advertise but they treat most of their advertisers with a condescending attitude. I think there would be a lot of advertisers that would be happy to just use Yahoo or Microsoft and not Google at all. However, when 80 percent to 90 percent of most companies' revenue comes from Google, it's basically Google and everyone else," Pape said.
Of course, simply acquiring Yahoo will do little good if Microsoft bungles the integration process. This in fact would give Google the chance to further boost its dominance. "They would have to quickly rationalize how they're going to integrate Yahoo," John Squire, Coremetrics' chief strategy officer, said in a phone interview.
Otherwise, if the integration drags on and the Yahoo and Microsoft search ad teams operate independently for an extended period of time, publishers and advertisers might get confused and turned off by the conflicting strategies and messages, Squire said.
Specifically, Squire worries that, as far as he has been able to tell, both Microsoft and Yahoo have been recently quick to acquire multiple online ad companies, but not as quick to merge their operations and technologies into their respective ad platforms.
Many things -- operational, cultural and technical -- can go awry during an integration of the Microsoft-Yahoo magnitude, Elkin said. "If the integration takes too long, if good engineers leave and if the momentum of one or both of the companies stalls, there is potential for negative consequences," he said.
The companies should also strive, as they proceed with the integration, to minimize the need for their advertisers and publishers to relearn how to use the Microsoft and Yahoo search ad tools and services. Having to embark on a steep learning curve would be a major turn-off for these partners and customers, said several of those interviewed.
"Should the deal go ahead, we hope to leverage our relationships with both engines to ensure that we're closely accompanying any changes in tools and systems. We would want any transition to be seamless for our clients and expect that new or revised tools would enable us to deliver more value for our clients' online campaigns," Elkin said.
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