"The danger is that Yahoo doesn't keep pace, doesn't invest enough and continues to see usage share losses," Sterling said. "What happens if Yahoo keeps losing share? Is this still a good deal for Microsoft?"
IDC analyst Susan Feldman is optimistic that Yahoo, through its extensive experience and knowledge of user behavior, will succeed at differentiating its search experience and remaining a viable search player. In particular, Yahoo can leverage what users have voluntarily shared with it through their opt-in Yahoo accounts to personalize their search experience, she said.
In addition, Yahoo can complement the Bing-powered search results with content of its own, and offer specialized query refinement suggestions and filters for people to slice and dice those results through different parameters, thus making it easier to zero in on the information they're looking for, she said.
Feldman is also bullish on the potential benefits Microsoft and Yahoo may reap from joining forces on the advertising front by offering marketers a stronger alternative to Google than exists today.
"This search deal is a smart move by Yahoo," Feldman said.
The companies said on Thursday they hope to have transitioned Yahoo's back-end search functions over to Bing by the end of this year, at least in the U.S.
Yahoo will also rely exclusively on Microsoft for self-service search advertising sales, the highly profitable market that Google dominates with its AdWords program. Thus, another transition that must be managed very carefully is the switch of Yahoo search advertisers and Web publisher partners over to Microsoft's search ad platform.
The companies said on Thursday they will work on "a customized plan" to make the transition "as efficient and seamless as possible." Microsoft and Yahoo are pledging to be in regular communication with advertisers, publishers and developers "via phone, e-mail, webinars" and a new Web site called Search Alliance.
For the deal's first five years, Microsoft will get a 12 per cent cut of paid clicks on the search sites of Yahoo and of Yahoo Web publisher partners, so it's key for Yahoo to maintain its search usage, or ideally grow it. Success in search advertising is closely tied to usage volume.
Yahoo and Microsoft hope to complete the transition of U.S. advertisers and publishers over to Microsoft's platform prior to this year's holiday season, but may postpone it to early 2011 depending on how the process goes, the companies said Thursday. Internationally, the transition should be completed by early 2012, they said.
Yahoo will be in charge of selling premium guaranteed search ads on behalf of both companies, and will handle the one-on-one relationships with the biggest advertisers, search marketing firms, resellers and their clients, the companies said.
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