July 29, 2009 / 11:38 PM / 10 years ago

Ad executives give Microsoft-Yahoo deal thumbs up

LOS ANGELES (Reuters) - Advertising executives gave the thumbs up to the pairing of Yahoo Inc YHOO.O and Microsoft Corp (MSFT.O) in the search market, hoping it will provide marketers with more bang against Google Inc (GOOG.O).

They said the partnership would create more efficiencies in reaching and tracking online audiences in the roughly $30 billion global search advertising market, by essentially merging the No. 2 and No. 3 search players.

“This is extremely encouraging and introduces more balance into the search and display markets,” said Sir Martin Sorrell, chief executive of British advertising group WPP (WPP.L). “It is good for our clients and our agencies and for regulators.”

Under the deal announced on Wednesday, Microsoft will provide the search technology for Yahoo’s sites and have a 10-year license to integrate Yahoo’s technologies, aiming to be a more powerful No. 2 to market leader Google.

Typically today, an ad agency working for say, Toyota Motor Corp, may go to Google, Yahoo or Microsoft to bid on text ads that appear alongside the results of search keywords like “hybrid vehicle.”

Ad executives said the combination of Microsoft and Yahoo will give advertisers a stronger alternative to Google that provides scale with the benefit of a combined platform.

According to comScore, Google has a 65 percent share of the U.S. search market, compared with Yahoo’s 19.6 percent and Microsoft’s 8.4 percent.

“You go from a three-party race to a two-party race,” according to Randy Schwartz, national search director at Carat USA, who said the deal could level the playing field in some advertising categories if clients see they are now reaching audiences more effectively through Microsoft and Yahoo.

“There are sectors that might see comparable value and see as much traffic from a Yahoo search as a Google search,” he said.

BUZZ FOR BING?

If the Microsoft/Yahoo partnership proves effective in boosting advertisers’ return on their ads, it could eventually eat into Google’s market share or expand the overall market, advertising experts said.

“If the word gets out that Bing has plenty of volume and is performing at a high rate, whether through better return on investment or click rates, that’s when advertisers will decide whether or not to shift more budget to Bing,” said Rob Garner, search strategy director for agency iCrossing. Bing is Microsoft’s new search engine, introduced in late May.

Garner said if more advertisers are drawn to a particular category as a result of the deal, ad prices could potentially increase.

“Let’s say there’s more buzz around a particular campaign, then you might see 10 advertisers rather than two competing on that one spot. Typically, when you get more advertisers into the mix, prices go up,” he said.

But Garner and other ad executives warned that many other factors, such as the economy, could also affect pricing.

Ad executives believe the deal, expected to be reviewed closely by regulators and pegged to close in 2010, would render better efficiencies and eliminate hassles formerly involved in preparing three separate campaigns.

Joshua Stylman, chief executive of advertising agency Reprise Media, which counts Microsoft among its clients, believes there should be cost savings for marketers.

“Our hope is that there will be savings in terms of efficiencies. The search category is a highly technology-leverage business in terms of planning, trafficking, tracking and optimizing campaigns,” he said.

“Not having to manage certain systems due to this combination should shrink the cost structure of managing advertising campaigns. What this means is there is one less set of pipes we need to accommodate over times.

“You should get more Bing for the buck,” he said.

But others are convinced Google will continue to reign supreme. “Bing’s platform for search advertisers is vastly inferior to that of Yahoo, so consolidating Bing and Yahoo on a single platform will reinforce the inferior experience compared to Google and could, in the long term, severely damage future revenues,” said Martin McNulty, director, search marketing specialist Trafficbroker.

Additional reporting by Kate Holton in London; editing by Tiffany Wu and Steve Orlofsky

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