Microsoft may be planning to back a deal that could save the floundering search business from its ultimate demise.
There have been rumors lately that Microsoft could be planning to contribute funds to a buyout of the search company Yahoo, which is showing signs of a serious struggle to stay afloat. According to a report from Seeking Alpha, the company may even go as far as a complete acquisition to enlarge its share of the online search market.
The move could prove to be a good decision on Microsoft’s part. Both companies operate search engines whose times appeared to have came and went. Both Yahoo and Microsoft’s Bing have been battling it out for second place behind the behemoth Google, and combining resources in a massive acquisition deal may just give the competitors the kick they need.
Yahoo’s CEO Marissa Mayer has received considerable criticism since taking the post in 2012, and the company’s performance never quite reached the levels of growth it saw in the early 2000’s. Yahoo and Microsoft struck a deal in 2009 to implement the Bing search engine for “algorithmic and paid search services.” The agreement was set to last for ten years, and Yahoo’s search capabilities were now in Microsoft’s hands.
Mayer was not a fan of the deal when she took her position as CEO, and promptly began trying to shift the company’s focus back to search. By rejecting Microsoft’s support with Bing, Mayer had effectively pitted the company against its previous partner. Instead of facing down Google, Yahoo was now also competing against Microsoft.
Mayer is a keen engineer, and began to search for niche search functions that were not exclusively Microsoft’s domain in the contract laid out in 2009. Yahoo shifted its focus to developing mobile search functions through applications and what they referred to as “contextual search.”
Contextual search takes metadata about a phone’s user including search history, a history of sites visited, app usage, and geo-location data to give tailored search results. It stirred up quite a bit of controversy, seen by many as a massive invasion of user privacy. Mayer insisted that contextual search remain a viable opportunity for the company.
In addition to pursuing avenues that were not in violation of Yahoo’s and Microsoft’s contract, Mayer angled for a direct renegotiation of the agreement’s terms. Under the new agreement, filed with the SEC in April 2015, Microsoft’s share in Yahoo and its partner sites was reduced to 51 percent, and the company would stop receiving revenue for searches that didn’t use Bing.
Yahoo’s strategy failed miserably. Their 2015 earnings report showed that the cost of acquiring traffic proved to be too much for their weak revenue stream to handle. The company posted a loss of $4.748 billion at the end of last year.
It remains to be seen in the rumors of an acquisition will play out, but Microsoft may stand to gain a lot from a complete buyout of the bleeding Yahoo. By swallowing up Yahoo’s user base and traffic streams, the day of Bing may still be yet to come.
A press release describing the details of Yahoo’s recent earnings report can be found here.