Microsoft, Yahoo can now take on a common enemy -- Google

Analysts say combination could diminish Google's search dominance over long-term

Today's decision by U.S. and European regulators to let Microsoft Corp. and Yahoo Inc. join their search businesses could significantly heat up competition in a business that in recent years has been dominated by Google Inc.

"This could be a big change for the search industry," said Dan Olds, an analyst at Gabriel Consulting Group. "It combines the search efforts of two large players that both have a small search presence, but have a lot of resources and assets which they can devote to competing against Google.

"I think that this will ramp up both competition and innovation . Yahoo and Microsoft now have one common enemy -- Google. And they will devote all of their energies toward making their search a more attractive option both for users and advertisers," Olds added.

Microsoft and Yahoo - both major Google rivals in multiple businesses -- announced this morning that both the U.S. Department of Justice and the European Commission have approved a agreement between the two firms to have Microsoft's Bing search engine power Yahoo's sites. Microsoft and Yahoo signed the agreement last summer pending regulatory approval.

The companies disclosed today that a joint engineering team will begin adapting Bing for the Yahoo site "in the coming days" and that they hope the engine is added to the Yahoo site, at least the United States, by the end of this year.

The partnership, which includes Yahoo selling premium search advertising services for both companies, is a direct attack on rival Google, which has long dominated the search market. Google accounts for more than 64% of worldwide searches, according to multiple research firms.

In an email to Computerworld , Google spokesman Adam Kovacevich said the search company welcomes the new competition.

"There has always been robust competition in our industry, which keeps us on our toes and benefits users," wrote Kovacevich. "We compete against a number of alternatives, including traditional search engines, vertical search sites, social networks, and other forms of online and offline advertising."

While most analysts agreed that the Microsoft-Yahoo search plan doesn't present a short term problem for Google, Olds said the search giant should keep a close eye on on their longer-term actions.

"Google definitely needs to take this threat seriously," Olds said. "Their two biggest and most well-heeled search competitors are now joined at the hip with the single goal of taking away Google's biggest, and essentially only revenue source. This definitely should get their attention."

"They need to realize that this is a new entity that is going to go all out against them," he added. "Even though Bing alone hasn't made a lot of headway against Google, it did make a significant splash when it was introduced and that served notice that Microsoft is serious about competing and raising the bar. With Yahoo, they now have a shot to make it more of a fight. I think this is really the best chance anyone has to be a viable competitor to Google."

Ezra Gottheil, an analyst at Technology Business Research, said that a combined Microsoft and Yahoo search business faces a very tough task to take any market share away from the very well funded Google.

"Google's the leader in search, just like Microsoft's the leader in operating systems and PC applications," Gottheil said. "Knocking off the leader is difficult. It's not like Microsoft has been underspending on search. Bing needs to be significantly better to grow faster."

Allen Weiner, an analyst with Gartner, Inc., doesn't expect the Microsoft-Yahoo combination will cause any panic withing Google's walls.

"Is Google worried? Not in any way, shape or form," said Weiner. "It's a company that's not short on hubris. Even if they have any minor degree of anxiety, I think they're in the don't-let-them-see-you-sweat mode. I don't think they're motivated by a lot of externality."

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Sharon Gaudin

Computerworld (US)

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