Microhoo alliance faces tough competitors in Asia

David Mitchell/Ovum
31 Jul 2009

Yahoo and Microsoft have announced a deal that brings to an end a very long period of speculation and discussion. It is long overdue. In many ways both companies, especially Yahoo, would have been better served if a deal had been concluded substantially earlier.

While the deal will allow a stronger competitor to Google to emerge, there are two caveats that need to considered. Firstly, when they are combined, the Microhoo proposition is complete and has been launched Google will still be the dominant market force, with a 70-80% share of the search market.

The second facet that few will consider, is that the deal and most of the commentary focus heavily on the US and European markets. In the Asian market there are very strong local competitors that continue to be more popular than Google, Microsoft or Yahoo. In China, for example, Baidu is a very strong player while in South Korea it is Naver that is the most popular search provider.

Given that the Internet population is growing fastest in Asia, both Google and the combined Yahoo-Microsoft proposition will need to work very hard to make inroads into this highly lucrative market.

In terms of the mechanics of the Microsoft-Yahoo deal there are few surprises. Ostensibly Microsoft will be the technology provider, drawing on its considerable expertise and investment capability for search R&D. Yahoo's, by contrast, focuses on advertising and media - playing to its core and historic strengths. Both companies are playing to their core competencies, in an effort to compete more effectively against Google.

The implementation of this deal will not be without its challenges. There are significant engineering challenges that both companies will need to work through and a substantial change management task to accomplish in implementing the agreement and the vision that it encapsulates.

It is to be hoped that the management attention needed to shepherd through this change does not distract either company from the day-to-day competition. It would be too easy to let this significant deal draw attention away from the task of developing and selling great products, thereby risking short-term revenues.

David Mitchell, Research Fellow at Ovum

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