It’s always interesting when two giants set aside their egos and collaborate on some deal or other. In this case, we have a software giant paying a second-to-Google superpower of search engines. Paying for what, though? Well, something called revenue-per-search or RPS. Or the shortfall that is associated with it.
The best way to understand the situation is to look back a few years, to 2009, when Microsoft and Yahoo first signed a search deal. Per this deal, Microsoft promised that Yahoo would earn a certain amount of money per search. When they didn’t hit the agreed upon RPS targets, Microsoft also agreed to make up the difference. In effect, they have been footing the bill for the last four years. And there are six more years to go, if the agreement is upheld to the end.
Why would Microsoft be in partnership for Yahoo, though, and why would it continue to make quarterly payments for a deal that clearly isn’t delivering the expected results? Other than being caught in a 10-year contract, there’s not much other reason.
Much of the issue has to do with Microsoft’s AdCenter and the technology they have in place for the buying and delivering of online ads. Basically, the system they use to push online ads really isn’t working as well as expected and never has. There’s considerable speculation whether Yahoo might actually go ahead and forge an alliance with Google to go ahead and work out the search engine ad problem. And even more speculation that they are hunting for a get-out-clause.
The real question we should be asking: why would Yahoo continue to partner with Microsoft when the foundation for the cooperation really isn’t there? Not only is Microsoft still falling short on its deal, it is also struggling to come up with much of a solution to improve the investment return.
As far as the partnership aspect goes, I think it is interesting that there is still any effort to keep the deal afloat. Perhaps it’s more that there really hasn’t been much of an effort – at least not an obvious one – to try and improve on Microsoft’s AdCenter.
The world of paid online advertising is certainly very tricky. With all the talk about grassroots campaigning and how people are just completely put off by paid online advertisements anyway, it’s a wonder anyone ever considers paying for advertisements at all. But that should be something, surely, that Microsoft and other invested companies are actually trying to solve. After all, grassroots advertising doesn’t work for everyone and it takes a lot of time.
Still, this partnership between Yahoo and Microsoft really isn’t moving things forward with RPS. Nor is the partnership apparently getting anyone anywhere.
While it is inspiring perhaps to see two major Internet based companies in partnership, (rather than what we have seen, for instance, with Amazon and Apple, at each other’s throats and battling over pittance), there are much better things that could come from these types of partnerships.