Rebecca Jennings [Posted by Rebecca Jennings]

This afternoon’s Microsoft/Yahoo! search deal ends months of discussion and speculation as to how and when these two giants would finally work out how to work together, after the rebuffing of Microsoft’s bid to buy Yahoo! last year.

Under the terms of the 10-year deal, Microsoft’s recently launched Bing search engine will power Yahoo!’s search services, and Yahoo! will provide the worldwide sales team for both companies’ premium search clients. Microsoft will pay Yahoo! an initial rate of 88% of search revenues generated on Yahoo!’s owned and operated sites.

Our take? My colleague Shar Van Boskirk posted a while ago (here) that she would like to see Yahoo! give up its drive to to beat Google, and concentrate on the elements it does do better – display media and social media. This deal should allow it to do that, devolving the competition and the significant investment involved off to Microsoft, whose Bing product showcases their determination to continue to fight.  

While this won’t immediately worry Google – In the US, Google has around a 65% share of the search market, (the new Microsoft/Yahoo! combination will have around 30%) and is even more dominant in Europe, with something around 80-90% depending on market – this will create a more viable second-string player in all markets, giving interactive marketers a significant, credible alternative/additional outlet for their search spend, or at least a better incentive to run trials outside of Google.  We’ve already published research (subscribers can read it here ) showing that marketers should use multiple search engines, which can provide more flexible ways to reach audiences, and this deal should help convince even the most stubborn budget-holder that spreading their money outside of Google would be beneficial.

Our recently published US Interactive marketing forecast (see Shar’s post about it here) shows that search spend is forecast to continue to grow at around 15% a year, to over $30bn in 2014 in the US alone – which explains why Microsoft is so keen to play in this market. With a 30% share of the US market, this gives them enough muscle power to start disrupting the current status quo – by being more competitive on price, for example. For interactive marketers, another strong competitor can only be a good thing. Your thoughts?