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Microsoft, Yahoo Now Must Sell Search Pact To Users, Advertisers

2/18/10

SAN FRANCISCO (Dow Jones)-Yahoo Inc. (YHOO) and Microsoft Corp. (MSFT) have sold regulators on their Internet search alliance. Now comes the hard part: Selling Internet users and advertisers.

The deal, under which Microsoft’s Bing will become the search engine on Yahoo’s Web sites, has created some confusion among users who think Yahoo has exited the search market, as well as advertisers and search engine marketers who remain unsure of how the new partners will operate.

Industry executives said the Yahoo-Microsoft alliance must focus on Internet searcher so it can start gaining search market share — and clearly delineate the responsibilities of each partner if they are to emerge as a credible counterweight to industry leader Google Inc. (GOOG)

“The day the integration goes live, double the (number of) searchers and marketers will be making the decision if they like the product or not,” said Kevin Lee, Chief Executive of search engine marketer Didit.com Inc.

On Thursday, U.S. and European regulators approved the 10-year deal, which grew out of failed merger talks. The two companies hope they can integrate their systems in the U.S. by the end of the year, in time to shift a significant number of advertisers and publishers to it before the holiday season. All global customers and partners are expected to be moved to the new format by early 2012.

Yahoo and Microsoft must remain focused on delivering the most relevant search results to Internet users in an attempt to boost the duo’s market share, which in turn would attract a greater number of advertisers.

For Yahoo, that means weaving Bing’s search engine and results more tightly into its core news, finance and sports Web pages. And for Microsoft, it means a complicated process of merging systems, which Didit.com’s Lee warned could distract it from innovating on the ad-targeting side of the business during the integration period. That could result in Bing falling further behind Google.

Furthermore, breaking ingrained patterns – Google’s service is so popular it’s become a verb – is hard to do, advertising executives say. “It’s a tough job providing consumers with a reason to switch a product that’s part of the language,” said Mark Read, director of digital strategy at WPP plc (WPPWPP, WPPGY)

It will also be important for the two companies to communicate clearly with advertisers and search engine marketers that place text ads on the Internet. People in the industry said they don’t know which of the partners they need to go to for specific requests.

“All of our brands, all of our clients, are asking that question: ‘Who do we go to for what?’” said Daina Middleton, President of Performics, the search marketing arm of Publicis Groupe SA (PUB, PUBGY).

Of course, even a little success could prove very profitable. U.S. advertisers spent $10.8 billion on Internet search ad last year and the market is expected to reach $15.8 billion in 2014, according to eMarketer. Scratching away just a few percentage points from Google’s 65% of the market could generate handsome profits for both companies.

But it won’t be easy. Rather than ceding ground to either Yahoo or Microsoft, Google’s share has been holding steady. Instead, Yahoo has been losing share to partner Microsoft.

Since it launched Bing last May, Microsoft has seen its share of the search market grow to 11% in January. Most of that growth came from Yahoo, which has seen its U.S. search query share decline more than three percentage points to about 17%, according to research group comScore.

-By Scott Morrison; Dow Jones Newswires; 415-765-6118; scott.morrison@dowjones.com

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