On February 18th, MSFT and YHOO issued a joint announcement that the DoJ and European commission had approved the companies search deal. According to the press release, “implementation of the deal is expected to begin in the coming days,” and is likely well underway. The 10 yr commercial agreement makes MSFT (Bing) the back end algorithm / paid search provider. MSFT will absorb over $600mm in search related opex over the next several quarters.
MSFT and YHOO gaining regulatory say-so has received little press since the announcement. It’s possible that there was little doubt the deal would be approved. It is also possible that we have dismissed the partnership as yet another futile attempt to stop the unstoppable. We’re all a bit google-y-eyed for Google.
Google is unquestionably deserving of our awe; however, the MSFT/YHOO partnership should not be dismissed. According to comScore’s January search data, MSFT and YHOO combined represent 28.3% market share versus Google’s 65.4%. The data also show that Google’s share contracted month-to-month by 30bps, while MSFT (Bing) expanded by 60 bps. Internet users are increasingly typing queries into Bing.
MSFT isn’t sexy, but to state the obvious, the company has made a fair amount of coin selling desktop software. Last year, MSFT generated $24bn of EBITDA after investing $16bn in R&D. MSFT has $33bn in cash. This compares to $10bn of EBITDA and $3bn of R&D at Google. One could argue that differences in numbers of this magnitude are inconsequential – my point is that MSFT is a formidable competitor, and Google, as market leader, has more to lose. Also, let’s not forget that a certain Mountain View company once powered YHOO’s search.
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