Could It Rain On The Microsoft-Yahoo Marriage?

Microsoft and Yahoo's long trip down the aisle has been worthy of Jane Austen, beginning with months of awkward flirting and unrequited passes. But after more than a year of courting, the two families were pleased to formally announce the companies' pending marriage Wednesday morning. All are invited.

Microsoft comes to the deal with a much-needed dowry for struggling Yahoo. But the pair's future will depend just as much on what investors and regulators think of this arrangement as it will on the technology and marketing smarts this union would combine.

The path to partnership began with Microsoft's unsolicited buyout offer 18 months ago. That led to weeks of talks that ended with no deal, despite the urging of some of Yahoo's biggest investors.

The two companies continued to talk on and off, with Microsoft proposing to join forces on search tools at one point — even as Yahoo began publicly playing footsy with rival Google on an advertising deal. Antitrust concerns quickly broke up that couple last fall. Days later Yahoo co-founder Jerry Yang stepped down as CEO.

Quite a saga, as documented by tech news sites CNET, and paidContent.

So what are the prospects for the Microsoft-Yahoo relationship going forward? TechCrunch co-editor Erick Schonfeld noted that Wall Street was hardly overjoyed in the hours after Wednesday morning's announcement:

But that is short-sighted of investors because the actual deal ends up giving Yahoo a much bigger share of search revenues (88 percent) than the previous deal that was on the table last year. It is actually a much better deal for Yahoo long-term if it works, and aligns its incentives closer to Microsoft's.

And if regulators approve. paidContent's Rafat Ali pointed out that many of the same antitrust questions that tripped up Google's deal with Yahoo could reemerge — both in the United States and in Europe. Among the questions that Ali said regulators will likely ask:

-- How will MSFT-YHOO share search/user info?

-- How will the two share this info with their partners?

-- How will the ad targeting work for users and on the backend?

-- What impact does this have on smaller players?

-- How does it affect competition in the space, on the following parameters: lower prices, better service and greater innovation?

One point in Microsoft and Google's favor: the two companies' combined share of the search market would still be less than half of what Google and Yahoo's combined share would have been. As is, Google alone commands nearly two-thirds of the U.S. search market, based on June numbers from Web-audience tracker comScore.

Wednesday's soonly weds hope to capitalize on those numbers by positioning themselves as the far-reaching alternative to Google, whose dominance has become a concern for many advertisers. And Microsoft's recently launched and heavily marketed Bing search service may help buy it and Yahoo some credibility — as Frederic Lardinois of ReadWriteWeb notes:

...Bing is a worthy competitor to Google's search engine, which both Microsoft and Yahoo try not to mention in all their press materials, but whose shadow obviously looms large over this deal. Advertisers aren't likely to spend a lot of money on a search engine that only commands less than 10% of the market, but once combined with Yahoo Search, Bing could easily reach 20% or more. At this point, advertising on Bing becomes far more interesting.

Will Google urge antitrust watchdogs to scrutinize the Microsoft partnership with the same intensity they trained on the abandoned Google-Yahoo arrangement?

Blogger Kara Swisher, writing for The Wall Street Journal's All Things Digital Web site, reported that her sources think Google "will likely try to keep a low profile at first in opposing the deal." But "low profile" does not mean no profile. Swisher said:

Anti-competitiveness would likely be Google's first arrow in what will surely be an attempt to slow down, if not block, the deal. And while advertisers are more disposed to have a stronger No. 2 player to counter Google's growing power, the company might use the opportunity to shave the sharp edges of its ever-scarier reputation.

That reputation and broader questions about the future of online advertising are already a topic of interest on Capitol Hill. Some lawmakers there are focusing on how advertisers track users to more directly target their marketing messages. In fact both Yahoo and Google had executives testifying on that issue at a recent House subcommittee hearing. And the Microsoft deal will increase congressional interest in the online ad business in general.

Herb Kohl, the Wisconsin Democrat who chairs the Senate panel with responsibility for consumer rights and anti-trust issues, said his subcommittee will "closely review" the partnership's implications. "The deal between Yahoo and Microsoft — industry giants and direct competitors in Internet advertising and search markets — warrants our careful scrutiny," Kohl said in a statement. "Our subcommittee is concerned about competition issues in these markets because of the potentially far-reaching consequences for consumers and advertisers, and our concern about dampening the innovation we have come to expect from a competitive high-tech industry."

Another pressing question about the Microsoft-Yahoo deal — at least for headline writers and bloggers — is what to call this new alliance. The two parties unveiled this catchy new 25-character Web address today: choicevalueinnovation.com. Try that in a Twitter post!

The Register, an international technology news site, did a reader survey on this question early last year. All the usual candidates were on the ballot — Microshoo, Mahoo, Mihoo, etc. The winner, with 30 percent of the 4,249 votes cast: Microhoo. And since this business is all about counting users, I'm inclined to go with the popular vote.

The "Microhoo" label dates back to at least May 2007, around the time the backroom conversations first became the subject of public speculation.

But Swisher, the Journal's BoomTown blogger, was among the first I recall using the term — as in this Jan. 11, 2008, posting throwing cold water on some of the preliminary deal chatter. Her take back then:

Microsoft continues to cast about for a viable Internet strategy, as it always does, and Yahoo is probably the numero-uno solution on its business development fix-it list.

Funny how little changes in this story, no matter how many twists and turns it takes.