Microhoo is not just about traffic. It’s about data. Period.

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Microhoo is not just about traffic. It’s about data. Period.

Opinion – I am glad some deal between Microsoft and Yahoo finally got done. Despite its seemingly simple purpose to give Microsoft much more leverage in advertising through increased search market share, it is somewhat apparent that this is a very complex partnership with much more intentions than Microsoft has revealed so far. Microsoft can’t be so naïve to believe that the deal will allow the company to catch up with Google in search market share just by slapping a Bing logo on Yahoo’s front page. No, Microsoft is after something entirely different.

Let’s imagine you could play Steve Ballmer for a day. On a day you would have to come up with a strategy to dent Google’s 65.0% market share in the global search and search advertising market. Take a few billion dollars out of Microsoft’s war chest and start spending. What would you do?

Would you build your technology and marketing power on your own or would you begin acquiring companies and which ones would you buy? What companies would you buy and what would be the goal? Increase traffic to Bing? Increase credibility of Bing? Weaken Google, if that is really possible right now? If it was me, it seems somewhat obvious that Microsoft should not be after search traffic primarily. It is Google’s strength that Microsoft may not be able to weaken for a very long time. With a market share of currently about 8.4%, according to Comscore, focusing on market share gains would be an almost hopeless effort, even if yahoo and Microsoft now hold a combined 27.0%.

Wouldn’t it be much more efficient if Microsoft flanked Google and was shelling a key weakness of Google, preferably with a key strength of itself and a strength that a partner, such as Yahoo, could provide or amplify? If you think in that direction, the Yahoo deal suddenly turns into something what could only be perceived as business brilliance.

Yahoo has one key advantage over Google: Range of topic areas. Yahoo operates a much broader topic range of web sites than Google. Yahoo runs well over 100 websites and service, including Flickr, del.icio.us, Hotjobs, as well as dating, real estate, and entertainment websites. Those sites reach, according to Yahoo, 500 million users. Realistically, Google knows what sites web users are looking for. But Yahoo picks many of those users up and knows what they do on sites that capture a stunning range of interest areas. Combine Microsoft and Yahoo, add up the traffic and you suddenly see a new dimension of data collection on the Internet.

I do not doubt that Microsoft is also looking for Yahoos’ traffic and credibility for Bing. However, it seems to be clear that Microsoft is primarily after the user data that is generated by Yahoo and Bing. That alone may enable the two companies two create a much more valuable advertising platform than Google can at this point. For about $500 million a year, this is one helluva bargain for Microsoft. There was no need to buy Yahoo for a few billion dollars. Microsoft gets what it wants for a fraction of the acquisition cost, without having to deal with the hassles of a merger.

During yesterday’s announcement, Steve Ballmer said: “There’s a feedback loop in the search business – the more paid ad searches you serve, the more you learn about what people are clicking on. Scale drives knowledge, which drives innovation and relevance.” I absolutely agree. And today I see Steve Ballmer quoted by the Washington Post saying “People expected something to be sold. Nothing got sold and nothing got bought. Nobody gets it.” I agree again.
It was the perfect deal for Microsoft. It’s all about the data. Yahoo’s traffic is just a bonus.

Wolfgang Gruener is the founder of TG Daily. The opinions expressed in this commentary are solely those of the author.

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