The Daily Beast: Microsoft’s Prison Yard Conquest

Perhaps the only thing more amazing than the ability of a newcomer to fundamentally change the landscape of the entire technology industry is the ability of the old guard to adapt to the new terrain. IBM, AT&T, and Intel, to name three, all rebounded strongly from the brink.

Now, Microsoft and Yahoo are teaming up protect their brands and their shareholders against the unstoppable force that is Google. In doing so, both companies are demonstrating a willingness to change what they are on the most fundamental level, in order to survive. Yahoo search will now be licensed to Microsoft’s Bing. Microsoft gets access to Yahoo’s search community, and Yahoo gets to focus on display ads and its still-popular content, finance, and social sites. So why were Yahoo’s shares down 12 percent Wednesday, and Microsoft’s up a bit?

Yahoo is merely hooking up with the most alpha male company it can still find in order to survive. Microsoft will soon turn Yahoo into its prison bitch, and this won’t be pretty.

Because while Microsoft is actually getting something it needs, Yahoo is merely hooking up with the most alpha male company it can still find in order to survive. Microsoft will soon turn Yahoo into its prison bitch, and this won’t be pretty.

Once the Web’s preeminent search-engine company, Yahoo was confident enough in its own viability as an all-encompassing Internet brand that it felt no shame in licensing its core service—search—to Google, back in 2000. Yahoo searches were “Powered by Google,” still an upstart and hardly a serious contender for anything more than, well, indexing the entirety of human knowledge. Yahoo was social, Yahoo was a brand, and Yahoo was still Yahoo.

Of course, Yahoo’s tremendous popularity—its social cachet, if you will—was no match for Google’s data cache. The licensing agreement announced to the advertising industry that there was now only one real search engine in the world, and served to grow Google into the monster it is today. In the long run, Google may still have dominated search, but the march wouldn’t have been nearly as rapid, complete, or devastating.

Of course, Yahoo eventually realized that outsourcing its core competency in plain view of the entire Internet might not have been such a great long-term strategy, and so they brought search back in-house. They retained a relatively strong second position in the search business, and competed by developing some innovative advertising models.

But again, Yahoo might be underestimating what it owns: a significant share of the Web browsing and online advertising markets. Sure, it’s scary to be No. 2, especially when your No. 1 is Google, and Bill Gates is just behind you and apparently fixated on taking your place. But by making a deal with Microsoft, Yahoo has surrendered its spot as chief search challenger.

Clearly, Yahoo feared that it was going to get trampled, from above and below. In ceding its turf to Microsoft, it has created a combination that can challenge Google for real. Microsoft-Yahoo becomes a genuine Pepsi to Google’s Coke, Burger King to their McDonalds, Avis to their Hertz. Not so very terrible, in that it at least guarantees survival and a place at the table. Now that the search-based advertising business has just two clear players, those seeking to do advertising online know the two places they have to go.

And to the point that Yahoo can focus on some other Web content services, God bless. They deserve a break. But the mere fact that Microsoft has zeroed in on search ads as the most important market to dominate right now should have given Yahoo pause.

Microsoft has sought dominance on the Web for years, but never has it been more important than now. Applications from music-playing to word-processing are moving online, and the operating system itself—Microsoft’s core product line—is becoming increasingly less important. The future, at least as indicated by Microsoft’s moves, is the online all-the-time consumer, whose computer activity—from searching to document handling—is sponsored by advertisers.

In spite of my own reservations about Bing’s ability to convert Google users, I have to admit that the search engine does offer a genuine alternative to Google-style browsing, a more coherently organized selection of links, and a more advertiser-friendly environment through which to sell space and links. By turning every Yahoo search box into a Bing box, Microsoft may have bought itself the exposure it needs to be the next Google.

That is, if Yahoo can offer Microsoft the same sort of prison yard credibility it once gave Google. Yahoo is no longer the prize it once was, and it’s hard to see this cellblock surrender being as effective.