Why Microsoft and Yahoo won’t eat into Google’s dominance of search: Kohler

The Microsoft/Yahoo deal finally announced last night inevitably raises the question of whether two losers make a winner or just the biggest loser, but perhaps ‘winner’ is not really on the agenda, despite the rhetoric from Microsoft’s Steve Ballmer.

More likely both Yahoo and Microsoft would be satisfied with being a more profitable distant number two.

The deal is a 10-year agreement for Microsoft’s Bing to become Yahoo’s search engine. Yahoo gets $US275 million a year in cost savings and an 88% share of revenue generated on its own sites, Microsoft gets more traffic through Bing and can do more innovation, according to Ballmer, and Yahoo will provide the sales force for both of their premium search advertising.

Yahoo shares were understandably sold off initially because of disappointment that it was not getting a revenue guarantee or an upfront cash payment, but beggars can’t really be choosers: this deal really is Yahoo giving up on search because its engine is not good enough.

Bing will also become the default search engine for Yahoo7 in Australia, but that’s much less significant here. Yahoo’s partnership with the Seven Network, which hasn’t gone very well, and Microsoft’s deal with the Nine Network, which has, are both all about content, not search.

Yahoo7’s share of online ad revenue in Australia has been stuck at around 10%, while Ninemsn has about 25%, with Fairfax Digital about halfway between the two.

But in search, which is a separate market, Google dominates everywhere. Bing (which stands for ‘Bing is not Google’) fluctuates between 7 and 12% of searches, according to StatCounter, and is currently at 6.5%; Yahoo is quite stable at 11 %, while Google is stable at 80%.

It’s hard to see last night’s deal making a difference to that.

The problem, it seems to me, is that while Bing is pretty good – Steve Ballmer says “it’s as good as Google, maybe slightly better” – that just won’t cut it.

You can’t knock off a dominant player by just being as good – you have to be better, much better.

Bing is certainly blindingly fast, in fact faster than Google in my experience. But when you are talking in milliseconds, that’s not much of a competitive advantage. And in any case, it will probably slow down when Yahoo’s traffic is added.

Bing’s interface (www.bing.com) is virtually identical to Google’s, except it uses a picture that changes every day. The map section is hopeless; the images section looks much the same, although strangely a picture of former NAB chief John Stewart pops up in Bing when you search for pictures of me; and when you search under ‘News’, Google starts you off with a display of today’s top news stories, while Bing keeps you on the search home page.

These might sound like trivial matters, but when it comes to search, little things matter.

Maybe the new capacity for innovation that Steve Ballmer talks about, now that it will have Yahoo’s traffic running through its servers, will mean Microsoft can catch up and pass Google, but Google is doing a lot of innovation as well.

And that includes coming after Microsoft with its own operating system, called Chrome (discussed in this interview on Business Spectator with Google Australia head, Karim Temsamani) along with its foray into real estate classifieds through Google Maps.

So which is the predator, really?

This article first appeared on Business Spectator.