Feeds

Ballmer's Yahoo! bullishness hides Bing brand play

Hopes for Windows Vista Mojave moment

5 things you didn’t know about cloud backup

Steve Ballmer has been telling partners and investors to man up on search and advertising, saying people "didn't get" Microsoft's online deal with Yahoo!.

Now, it's become clear why Microsoft's chief executive is so bullish.

Ballmer is selling a deal that ties Microsoft to some tough deliverables, which will see Microsoft lose money in the short term and will measure success against one single yard-stick: Google.

Yahoo! latest Stock Exchange Commission (SEC) filing reveals that Microsoft has committed to hit a set of pre-agreed revenue per search numbers in the US that are based on a percentage of Google's own estimated RPS. The actual numbers have not been released.

Should Microsoft fail, then Yahoo! has the right to terminate the agreement.

That's a huge statement of confidence in Microsoft's Bing and AdCenter, which will provide the search engine and serve ads for Yahoo!'s own sites and its syndicated properties. But Bing and AdCenter are relatively new. Will they really pull in the hits?

Ballmer has committed Microsoft to some serious lack of revenue realization opportunities under the proposed deal. Microsoft will pay Yahoo! $50m each year for the first three years of the 10-year deal, while Yahoo will claim 88 per cent of the net revenues generated by Bing and AdCenter. If Microsoft decides it doesn't want Yahoo!'s to keep selling the joint offering after five years, then Yahoo!'s share of revenue will shoot up to 93 per cent.

That's money that might have gone towards Microsoft covering its costs on Yahoo!. The company expects to lose $300m in the first two years of the deal according to a leaked Ballmer slide from last week's Financial Analyst Meeting (FAM) obtained by Seattle Times here and here.

Furthermore, Microsoft must commit to taking on at least 400 Yahoo! employees - most likely engineers to help the technical transition - at a time when it's trying to cut costs. Those people are likely amount to $90m in "retention costs," according to Ballmer's lost slide. Yahoo! engineers would help with the implementation of Bing and AdCenter on Yahoo! properties in a period Yahoo! said is expected to take no more than 24 months.

These business costs excludes an additional $2bn, from of an $9.5 R&D budget, going into Microsoft's online activities.

Clearly, Microsoft thinks that Bing is already as good as Google and that its past search problems were all about branding - not the technology. Microsoft believes that if you change the label on the tin, people will be happy with the meal they eat and won't care about the ingredients. If Microsoft can fit into Yahoo!'s cloths, it believes, then the rest is just a matter of time.

It's the same Pepsi taste-test-challenge thinking inside Microsoft that produced the Mojave Experiment to hoodwink people into liking Windows Vista last year.

Qi Lu, the president of Microsoft's online services division, articulated this thinking at last week's FAM.

"We have seen plenty of studies whereby you put the Google brand on top of a search result provided by another search engine-versus the other way around, where you put the Google search results underneath, put the different brand on top of search results. People will prefer the Google brand because of the strength it has," he said.

Microsoft believes Bing can - given time - acquire drip-drip mindshare and hit the same cultural status as Google. Microsoft will judge Bing has arrived when it becomes a verb, like Google. Lu told FAM: "We are already seeing initial anecdotal evidence that people are using 'Bing' as a verb."

Unfortunately for Lu, most of his audience wouldn't know - or care - what a verb was unless it fitted into a financial model and delivered a good rate of return.

Ballmer has given himself plenty of time for the brand-versus-technology theory to play out. The Yahoo! deal will last for a decade, should it receive regulatory approval from various governments.

In the meantime, it's extremely unlikely Yahoo will want to terminate the deal should Microsoft not make the numbers against Google. Detachment from Microsoft will become harder for Yahoo! as the relationship progresses in the next 10 years, and Yahoo! increasingly relies on Bing and AdCenter online and stops its own investments in search and advertising.

Bootnote

Privacy activists and some US politicians are concerned about the anti-trust and competitive ramifications of Microsoft's deal with Yahoo!. Attention has focused on the idea that two big companies combined could exploit users' data at the expense of their privacy rights. Consumer Watchdog said users must have control of their data - whether it is collected and how it is use

Now, it seems, data gathered by Bing and AcCenter will be handed over to Yahoo! and come under the terms and conditions of Yahoo!'s privacy policy. The company said in its SEC filing: "Microsoft will provide Yahoo! all data it collects as a result of its implementation of the services on Yahoo! properties and syndication properties and, subject to Yahoo!'s privacy." ®

Secure remote control for conventional and virtual desktops

More from The Register

next story
6 Obvious Reasons Why Facebook Will Ban This Article (Thank God)
Clampdown on clickbait ... and El Reg is OK with this
BBC: We're going to slip CODING into kids' TV
Pureed-carrot-in-ice cream C++ surprise
Twitter: La la la, we have not heard of any NUDE JLaw, Upton SELFIES
If there are any on our site it is not our fault as we are not a PUBLISHER
Facebook, Google and Instagram 'worse than drugs' says Miley Cyrus
Italian boffins agree with popette's theory that haters are the real wrecking balls
Sit tight, fanbois. Apple's '$400' wearable release slips into early 2015
Sources: time to put in plenty of clock-watching for' iWatch
Facebook to let stalkers unearth buried posts with mobe search
Prepare to HAUNT your pal's back catalogue
Ex-IBM CEO John Akers dies at 79
An era disrupted by the advent of the PC
prev story

Whitepapers

Endpoint data privacy in the cloud is easier than you think
Innovations in encryption and storage resolve issues of data privacy and key requirements for companies to look for in a solution.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Advanced data protection for your virtualized environments
Find a natural fit for optimizing protection for the often resource-constrained data protection process found in virtual environments.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Next gen security for virtualised datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.