Partnership with Yahoo: What's in it for Microsoft?

By Josie Tao (Hong Kong)

Let’s talk details and numbers

Back in 2006, oldschool Microsoft wanted to team up with Yahoo to rival against search engine godfather Google. Remember the $47.5 billion bid Microsoft offered to buy out Yahoo? Despite what looked to be a hostile and aggressive attempt that got completely shunned, it is now apparent that the two Tech giants have been in close talks after Microsoft's high profile moves.

With what seems to be shaping as a 10-year deal with Yahoo, Microsoft will be able to tap into Yahoo's Internet search audience and advertisers.

So what does Yahoo have that Microsoft wants?

Microsoft makes the majority of its profits through its software products (Microsoft operating system, Microsoft office). But the personal computer is the the only component that makes Microsoft such a household item---it also has a strong presence in home entertainment such as Xbox and MSNBC. The average living room in America will have a slice of Microsoft in it.

Right now, comScore Inc tells us that two-thirds of the world's search is done through Google---while Yahoo amounts to 7.4%, China's Baidu takes care of 7% and Microsoft (Bing) at only 3.2%. A simple calculation will quickly tell you that only about 10% of current search engine activity occurs in Microsoft and yahoo combined.

Mind you, there is a hefty pricetag for a lousy 10% of combined search engine activity---Yahoo will be keeping 88% revenue from search ads in the first five of the 10 year deal. Meanwhile, Microsoft will pay most of the expenses.

If its not the big bucks, then what is it? Just ask Hong Kong billionaire Li Kai Sing.

Anyone recall Microsoft's advertising campaign tagline in the 1990s "Where do you want to go today?" If we take a closer look at the pattern of how people search online, there are two main ways internet users find information: search engine (yahoo, google etc) and social graph (facebook, forums, twitter).

In 2007, Microsoft paid a fortune for a small share of Facebook--$240 million for 1.6%. Our very own Hong Kong billionaire Li Kai Sing has poured $60 million into facebook.

With a Yahoo-Bing partnership in place and an on-going relationship with Facebook, Microsoft clearly sees the value and influence search engine and social graph play in online activity. Microsoft will soon have both tools to give them a clear picture of internet user behaviour: What are people looking for ? What are they talking about? What's interesting? Not only does Microsoft want to know where you want to go today, but more importantly how can they influence you on those decisions?

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