The iconic Yahoo died as a search engine yesterday, and remains a shell of its former self in the form of an advertising sales company. If the deal with Microsoft is approved, the two month old Bing search engine will replace the venerable Yahoo! search. For those keeping score, the deal gives Microsoft a 28% market share (per comScore). The search wars are on, now that Microsoft is at least within reasonable striking distance of Google’s 65% U.S. market share.
A quick recap of the deal from Techcrunch:
“As expected, Microsoft will power Yahoo Search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ advertisers.
This will have major repercussions for the online advertising industry, where both Microsoft and Yahoo carry a lot of weight. Likely, it will take months if not years to align these important businesses. On the flip side, as Yahoo CEO Carol Bartz indicated in the press release, advertisers and publishers would benefit significantly from a unified platform and the promise of scalability all around. I believe this is indeed the core advantage of the deal in terms of being able to compete with the dominant rival to both companies, Google.”
There are a couple of learnings to take away from the particulars of the Yahoo-Microsoft announcement. The below thoughts are not intended to denigrate Yahoo’s deal with Microsoft, which may give the combined search players a reasonable chance to strike at Google’s dominant market share. At this moment in time, the deal may be Yahoo’s best alternative to remain competitive and by all indications Carol Bartz is a savvy dealmaker. However, there are three learnings, which heeded could have prevented Yahoo’s boxing themselves into a corner in the first place:
1. Innovation is the ONLY long term competitive advantage. Period.
Yahoo was screwed the moment management began infighting and wrangling with Microsoft over a purchase price, but the decline came far before that moment. For years Yahoo became a wrapper for the Google engine, as a “powered by Google” indicator graced its pages. The internet literati noticed, began visiting the threadbare Google search page, and the rest is history. Yahoo saw little value in providing the core search and indexing service, believing it to be a commodity with low strategic value. Still, the company could have thrived by replacing search with innovation in other (more profitable) areas. The innovation could have been home grown or purchased, even: they could have taken in an innovator such as Powerset, Summize or other creators. That’s what Microsoft did.
The net result? Yahoo shareholders transferred 2.9 billion to Microsoft shareholders the day of the announcement.
2. Watch for Signs of Investment
Dave Thomas, the founder of the Wendy’s fast-food restaurant chain was once asked what his strategy was for selecting new restaurant chain locations, and how he conducts market research to guide buildout decisions. His answer was pure genius: “I wait and see where McDonald’s builds a new franchise, and I build a Wendy’s right next to it.” Dave Thomas knew then what the once mighty Sunnyvale search provider forgot: a larger competitor moving into your market is not a sell sign, it’s a buy sign. Microsoft doesn’t make acquisitions lightly, and its purchases were a queue to Yahoo management to pay attention. Instead they let the smart kids from Flickr, Delicious, and other innovative properties walk out the door, and shut down anything remotely resembling research.
3. Do No Harm (to Your Brand)
What does the Yahoo brand communicate to you? I don’t know, and (if you’ll excuse the slight ego thumping here) I’m one of those individuals who are supposed to. Yahoo recently began to dabble in social media properties, and their attempts to integrate social media’s brightest applications is a step in the right direction. However, the move simply puts Yahoo in a state of competitive parity. The changes do not make up for the loss in brand equity involved in a former search powerhouse licensing a two month old search technology. After removing the former “Powered by Google” which so deteriorated their brand, they will again further erode the brand’s uniqueness by returning to “Powered by Bing”.
As always, I welcome your thoughts below or on Twitter to continue the conversation.