Display And Search

As everyone knows, Microsoft and Yahoo! announced a deal yesterday where Microsoft’s Bing will become the new Yahoo! search engine and Yahoo! will sell ads against those search results on its site.  How will this impact display?  There’s a lot to this deal and it’s covered deeply all over the web (just Google it, oh, the irony).  But given that both Microsoft and Yahoo are display leaders, there’s likely to be an impact on display, or, at least, display/search convergence.

Let’s review how partners’ display business might be impacted by this deal.

Yahoo

Apt - In the short term there will not be much of an impact. Unless resources get quickly moved away from APT, but I expect the opposite, if any change, given the freeing up of Yahoo Search Tech and resources.  In the long term, it would be nice to think that APT could be expanded to include search.  How powerful would one platform that accessed the largest Display property, the entire RightMedia Exchange (it will someday be absorbed into APT) and the second largest search platform (with 30% market share). Unfortunately, since the rumors are that while Yahoo sales will sell premium search for Bing, Microsoft AdCenter will still be the self-service tool, consolidation into APT seems like a long shot.  Or is it?

RMX - the Right Media advertising exchange doesn’t interact with search much right now anyway, except for inclusion in the Display Extension product.  RMX’ long term destiny is as a part of APT.  The major impact may be that Y! can allocate more technical resources to display now that search tech is shifted to Microsoft.  Maybe RMX can get some love again from Yahoo Tech.

Display Products – I talked about Yahoo’s more innovative products last week.  SmartAds, which leverages search data, could really be helped here by the increased search volume from which to collect data.  However, the integration with Bing could either take awhile (likely) or be impossible (maybe).  Additionally, as Henry Blodget says, MSFT display will likely want to leverage this data as well – which creates both strategic and implementation issues.  The Display Extension product seems to be related to SmartAds, so impact would be similar.

Overall - I think it’s more positive than negative and can’t really hurt.  My contacts who sell Yahoo display told me that the deal won’t impact them at all, they don’t touch search in any way.  But as Yahoo continues to trim the fat, I have to believe that they will try to combine Display sales with Premium Search sales in some way.  Particularly as they continue to roll out products like SmartAds where they work together.  Additionally, Yahoo display insiders are excited that this may open up more resources for them.  Looks like a plus for Yahoo Display and Display Search Convergence.

Microsoft

It is real difficult to get a handle around Microsoft’s Display Strategy. They recently launched Microsoft Media Network (MMN), which consolidated their various networks and properties but seemed to take a step back by losing biddability (which the old network had).  The AdECN exchange has been in development since Obama was a long shot and Favre was a Packer and during this time other exchanges have gained access to Microsoft inventory.  The whole thing seems a bit scattered.  But I’ll try, for you, that’s what I do.

MMN - My interactions with the MMN sales team makes me think they don’t really touch Search at all.  However, there is one piece that does not make sense or, at a minimum, seems to be a huge challenge.  In a ClickZ article today Yusef Mehdi of Microsoft talks about how Microsoft salespeople will now only sell display and, once a customer wants to talk search, the person will be passed off to a Yahoo rep.  Hmm, ok. So let me get this straight. I’m a MMN display buyer, very loyal to Microsoft. I ask about search and my rep, who takes very good care of me and I’ve known for years, introduces me to someone at Yahoo.  That person at Yahoo either also can sell me Yahoo display or she sits next to the person who does.  So while we’re getting to know each other, I learn how I can also buy Yahoo display and I reallocate some budget from Microsoft display over to Yahoo.  Not an unrealistic scenario and once that happens a few times Microsoft sales will stop referring people over to Yahoo premium search sales.

AdECN - By the time this deal is active in media (Q1 2010 at soonest, right?), AdECN will, I pray, be out of Beta so the success or failure of the long-awaited exchange will likely not be impacted by this deal.  That said, the inclusion of Bing search data within AdECN’s targeting capabilities would be very nice.  I do not see Google allowing search data in AdX in the near future and it would probably take major work to get it into RMX pre-APT,  so this could provide positive differentiation at least in the short term.

Overall - On the surface, the deal seems to impact Microsoft Display far less than it impacts Yahoo display. Primarily because premium search sales is now with Yahoo and there wasn’t much Display / Search integration at Microsoft before.  But the sales channel conflict is really nagging at me.  I’ve managed online ad sales people before. This will not fly if they see themselves losing business (and they can smell a rat as well as anyone).

So here’s a crazy idea.  Could this deal be the start of something bigger?  In Search, MSFT will now be all technology and infrastructure while Yahoo will be all sales & marketing.  If MSFT continues to be frustrated in display, could a similar deal be struck?  Why is Microsoft focusing on sales of display advertising anyway?   Microsoft doesn’t have a next-generation APT-like platform (unless Atlas has some secret plans) and it is far behind in the exchange game.  Plus, the conflict of one salesforce selling search for both while both try to sell their own display will cause problems.  If APT succeeds and Ballmer has to continue to announce bad news on the display ad revenue side, look for the outsourcing of sales & marketing to spread and all Microsoft ad sales to be shifted to Yahoo.  For all that to happen, we’re talking mid 2011 at the earliest (it takes some time for frustrations to build and deals to be done), but it seems to be where things are going.

This deal will impact many others in the space. Particularly the other big guys like Google, AOL and IAC/Ask as well as SEM firms of all sizes (many of whom are dabbling in display).  I’ll cover that next. But don’t worry, there’s no rush. This deal will take years to truly understand and judge.

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