Analysts weigh in on new "MicroHoo" deal

Microsoft and Yahoo are aiming high with their new search partnership, but the ten year deal is also fraught with peril, warn analysts.

The two companies agreed to a deal on Wednesday in which Microsoft's Bing search will combine with Yahoo's search advertising branch. The combined effort hopes to rival Google in the search advertising market.

Pund-IT Research founder and principal analyst Charles King told V3.co.uk that while not unexpected, the deal is a promising sign that both Microsoft chief Steve Ballmer and Yahoo chief Carol Bartz are doing well at the helm of their respective companies.

"I'm optimistic with both Ballmer and Bartz, both recognize that in order to survive their companies need to evolve shark-like behavior, they need to keep moving forward," he said.

"Sometimes simply moving is more important than whatever your destination may be, especially if there's a crocodile at your heels."

King suggested that there would be opportunities for the two companies to move into areas where Google is still weak, such as advertising for SMBs and stories in local news outlets.

Major pitfalls could also await the two companies. Analyst Greg Sterling of Sterling Market Intelligence wrote that by handing over a large portion of its business to Microsoft, Yahoo runs the risk of losing much of its infrastructure and losing key employees and properties over the course of the deal.

"If Yahoo is really not going to fall completely into “also-ran” status in search, they’ll have to retain good people who can do the job and provide a differentiated experience from what exists at Google and Bing," Sterling wrote.

"If not, they’ll turn into AOL or Ask, companies that once had vibrant search efforts and essentially gave up, shifting into maintenance mode."

The ongoing evolution of the internet could also have a dramatic effect on the joint effort.

King pointed out that once the effort begins to take off in earnest, currently set for some time in 2012, the search advertising market may have already headed in a different direction, and by the time the deal runs out its ten year term, the web will likely be radically different.

The analyst noted that the search advertising market was just a portion of internet advertising, which itself is a small piece of the overall advertising business. King also noted the fluid nature of the internet, where companies and formats change rapidly.

"One interesting thing about the internet is how flexible an infrastructure it has turned out to be," he said.

"If you go back ten years people were making big bets on portals, then we moved over to the search engine, I think that we're still in the process of figuring that out."