Yahoo! Japan will use the Google Inc (NASDAQ: GOOG) search engine technology. Yahoo! Inc. (NASDAQ:YHOO) has a stake in the Japan operation, but is not the controlling shareholder. The decision is a slap in the face of Microsoft (NASDAQ: MSFT), which is about to become the search technology for Yahoo!, Inc. The Asian company must think the Microsoft’s Bing is an inferior product.
The announcement underscores the fact that Microsoft may not be able to gain much ground in global search. Google holds 70% of the market worldwide. Recent data shows that Baidu (NASDAQ: BIDU), Yahoo!, and Bing each have between 4% and 5%. The Yahoo! Japan move should ramp up Google’s number and push down Microsoft’s.
Japan is one of the world’s largest smartphone markets. That means it is an important battle ground for mobile search, the next big territory over which the search engines will battle. Google has to hope that its huge lead in the PC sector will transfer to wireless handsets. The decision by Yahoo! Japan should help it.Microsoft is being humiliated. It clearly was unable to sell its tech superiority to Yahoo! Japan. It was also not able to pay the Asian company enough to have its tech on Japanese site. Search engines often pay for the privilege of placement on PCs and large internet sites such as MySpace, AOL (NYSE: AOL, and Facebook.
And, it may come down to that. Microsoft, without a clearly superior search product, may have to buy its way into the market. The will probably mean billion dollar deals with AOL and perhaps, eventually Facebook. That would allow Redmond to pick up a few fractions of a percent in the global market. But over time it is a costly practice which could cost Microsoft more than the total annual revenue of Yahoo! which is just over $6 billion. Yahoo!’s net income was $600 million last year.
It is telling that Microsoft will have to pay much more than it is worth, at least financially, to take a position in search that its product cannot take on its own. This is a sign that its future in the sector is still shaky and will never bring Redmond a profit. Microsoft needs a powerful reason for such a tremendous investment and it still has articulated what that is clearly.
Douglas A. McIntyre
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