Google Needn’t Fear – The Microhoo Pact Is Crumbling

The excitement over Microsoft and Yahoo’s search partnership – whether for or against the match – might be a little premature. If the companies are able to secure regulatory approval for their search pact, Microsoft will supply the algorithms, images and video in Yahoo Search. But as Prabhakar Raghavan, senior vice president of Yahoo’s Labs and Search Strategy division said in a recent press conference, his company “will be free to innovate on top of that layer.”

During that press conference, Yahoo also announced a series of improvements to its search platform. It now features a multicolumn design, similar to its home page. It also allows users to find results from YouTube, Yelp and other sites across the Web. The company said that it’s planning to continue to compete in the search space, even though Microsoft will be controlling its destiny.

Some have said that Yahoo’s insistence on competing in search is good for both Microsoft and Yahoo. They believe that by having a vision and drive to improve its platform, Yahoo’s focus will only help the agreement between the two companies. It’s important, they say, for Yahoo to compete, since it still offers the second-most-popular search engine on the market.

I don’t agree with that sentiment.

Microsft and Yahoo need to be on the same page

If Microsoft and Yahoo are to have any shot whatsoever of supplanting Google as the search leader, they need to be on the same page. Whether Yahoo or Microsoft decides the focus of the combined effort, doesn’t matter. What is important is that the companies are in agreement with what their strategy will be going forward.

When Microsoft first attempted to acquire Yahoo, it seemed like the best course of action. The company could take what it wanted – search – and completely control its destiny. But after some haggling and eventually walking away from the table, Microsoft tried to follow the next-best strategy: acquire Yahoo’s search. That didn’t work out so well either.

So after more than a year of deliberations, Microsoft came to what was its third choice: partnering with Yahoo. But by partnering with Yahoo, Microsoft gave up its ability to fully control the vision and direction of the search engine. And now, as we consider the statements made by Yahoo in the recent press event, it might be coming back to haunt Microsoft.

Realising that, Microsoft needs to immediately set a direction for its combined search agreement. It needs to explain to Yahoo that it is giving up a significant amount of cash just to own the rights to the search engine. It needs to have the creative license to take Yahoo’s search where it needs to go.

It also needs to remind Yahoo that the online company has little to lose. Under the terms of the agreement, Yahoo can reduce its expenditures, while generating significant revenue from Microsoft. Microsoft, on the other hand, has all the risk: it needs to maintain the search service, while still investing in it to compete with Google. It’s a tall order.

Divided they fall

If there is a divide in the Microsoft-Yahoo pact, Microsoft won’t come close to achieving its goal of supplanting Google as the search leader. Microsoft will want to follow its direction. Yahoo will want to follow its own direction. And since it feels that it’s still competitive in the marketplace, Yahoo will be trying to do everything it can to take searchers away from Bing, just as much as Google.

After all, it’s in Yahoo’s financial interests to do so. It can generate higher revenue from those Bing converts. It might also be able to get them to switch to Yahoo’s services, such as Yahoo Mail. It’s a win-win for Yahoo. Although it needed to increase its search market share, Microsoft has brought on a partner that, based on its comments to this point, might not be on the same page.

Google was supposed to be the focus of the agreement. It was supposed to be Google that would worry about the partnership. Now, it seems that that plan has backfired and it’s Microsoft that needs to worry about Yahoo blazing its own path.

This deal was Microsoft’s third choice. When the company evaluated the pros and cons, it evidently believed that there was an upside. But did Microsoft expect Yahoo to insist on having some creative control over the vision of the new, combined effort? It’s doubtful.

The dissension between Microsoft and Yahoo must stop. If it doesn’t, Google will have little to worry about when the deal becomes official.