Is the Yahoo! Search deal favorable for Microsoft?

By , July 31, 2009 12:57 am

Two immediate questions came to my mind when seeing the Microsoft – Yahoo! Search deal: “Now that Microsoft has got Bing, what else do they want from Yahoo! Search?” and “Is this a favorable deal for Microsoft at all when they still allow Yahoo! to sell ads on it?”

And so I come with a scenario: Microsoft is playing a different game, by looking more into the future.

1. To lower bargaining power of Facebook

Microsoft has 15% in Facebook, yes.

What next, Microsoft craves the data inside the great wall of Facebook. This won’t end well. Mark is definitely brilliant and ambitious, and Microsoft’s demand will face challenges.

By having data from Yahoo! Search under his arms, Steve Ballmer has more bargaining power against Facebook, and additionally Microsoft has a fall-back plan should the relationship with Mark go sour.

It’s a big deal, now that social media are devaluing search power greatly, directly hurting Google’s business.

2. When it comes to Microsoft technical expertise, ain’t no data the same

Bing’s data will be different from those of Google. While Google has vast amount of diversified data, Bing will have data about people’s consumption preference, the arguably most valuable set of all customer information on the internet. Why? Because Bing positions itself as a decision-engine for shoppers first and foremost.

Data from Yahoo! Search will also be different, thanks to some very nice verticals Yahoo! is currently having. With their superior technology, Microsoft surely knows what to do and how to mine the data.

So, I have put on an argument that answers the first question: apart from making Bing the second competitor overnight, Microsoft will have the data it wants and enhance its control on many battles.

3. To create a precedent

It’s simply as that: Microsoft has made a precedent in buying a Yahoo! asset and more importantly, tying Yahoo! with a ten-year contract. Now that Yahoo! is having some nice products and platforms such as BOSS. What’s bad for Yahoo! will be good and cheap for Microsoft.

4. To make it useful and clean at the end of the year and in a decade

Financially, not paying up-front will make Microsoft’s balance sheet very clean at the end of this year.

Strategically, luring Yahoo! into a long-term deal will only turn the tide to Microsoft’s side, who has the cash powerhouse to pursue a real war with any competitor.

So then I have answers the second question: this deal is sweet for the giant.

What do you think?

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