Microsoft, Yahoo Tout Ad Alliance

In recent weeks, Microsoft has been touting its hoped-for Web-search partnership with Yahoo as a boon to advertisers, trying to drum up support for the alliance on Madison Avenue and damp antitrust concerns in Washington.
[The microsoft.com, yahoo.com, and google.com web pages are displayed on a computer screen in New York, U.S., on July 29, 2009. Microsoft Corp. and Yahoo! Inc. agreed to collaborate on Internet search and online advertising, creating a united front to challenge Google Inc. Source: Bloomberg] Bloomberg

The microsoft.com, yahoo.com, and google.com web pages

The two Internet companies have been selling the partnership, which was announced Wednesday, as a broadening of choices, providing a challenger to Google's dominance of search advertising.

Google captured about 70% of the $10.5 billion spent in the U.S. last year on search ads -- those that appear alongside Internet-search results.

"We have been laying the groundwork with big advertisers, asking, 'If we build it, will you come?' " says Michael Kassan, a longtime ad and media executive who now consults for Microsoft. Mr. Kassan says he has been meeting with advertisers, ad executives and industry trade groups.

On Madison Avenue, at least, it hasn't been a hard sell. "Competition is good, and the more there is, the better it is for our clients," says John Wren, chief executive officer of Omnicom Group. Rob Norman, CEO of GroupM Interaction Worldwide, the digital-media unit of advertising conglomerate WPP, says, "There wasn't much lobbing necessary."

In June, Yahoo Chief Executive Carol Bartz met with David Kenny, managing partner of VivaKi, a digital ad and media firm owned by Publicis Groupe, and discussed how a possible deal could add value to Mr. Kenny's clients. "I didn't feel they were lobbying, but felt they were generally asking my opinion," Mr. Kenny says.
[Carol Bartz]

Carol Bartz

Under the partnership deal, Microsoft's technology will power Yahoo's search engine, while Yahoo will sell ads on behalf of both companies.

Shortly after the deal was announced, the two companies went on a full-court press, sending out separate letters to major ad agencies and advertisers. One was entitled "Benefits to Consumers, Customers and the Internet." Yahoo also approached big search advertisers, such as online brokerage Scottrade and travel Web site Travelocity.com.

Microsoft CEO Steve Ballmer and Ms. Bartz spent part of Wednesday morning calling advertising heavyweights like Publicis CEO Maurice Levy and WPP chief Martin Sorrell, according to people familiar with the matter. It's an important constituency; WPP alone spends roughly $850 million of its client's ad dollars with Google annually.

Meanwhile, major marketers like Unilever, Best Buy, Travelocity, InterContinental Hotels Group and Scottrade, say they welcome the Microsoft-Yahoo alliance, not just for competitive reasons, but because they think it will eventually streamline the way they buy search ads. "Today, we manage an account with Microsoft, and we manage an account with Yahoo. I love the efficiency that it will be consolidated in one platform instead of two," says Victoria Treyger, Travelocity's chief marketing officer.

When larger advertisers buy search ads on the Web, they generally look at the proportion of consumers who use each of the handful of Internet search engines, and place bids accordingly. Google gets about 70% of the search-ad money spent by a typical marketer, with the rest spread among Yahoo, Microsoft and other players. Marketers then adjust their spending among the search engines according to how each performs. Microsoft and Yahoo are out to change that equation.
[Great Expectations]

But not everyone believes the partnership will be an easy sell. "It will be tough, because Google has become a de facto standard from a search perspective," says Jeff Hayzlett, chief marketing officer of Eastman Kodak. "When your brand name becomes a verb [for search]," he says, referring to Google, "it can be game over for the rest of the pack. Changing people's behavior is the hardest thing any company can do."

But some advertisers say they are concerned about the potential for glitches as Yahoo commits its search-ad salespeople to Microsoft's technology.

Under the deal, Yahoo will get a significant portion of the revenue from the search ads it sells on Yahoo sites. It won't get paid for the ads it sells on Microsoft sites. That revenue will go entirely to Microsoft.

Advertisers also will be able to buy the search ads on both companies' sites directly through a self-service system created by Microsoft. If cleared by regulatory authorities, the arrangement is expected to take about two years to fully implement.

"We want to make sure it is a simplified process, and that's the challenge," says Rob Master, Unilever's director of media for North America.

In an interview Wednesday, Yahoo's Ms. Bartz said the deal will make it easier for advertisers by creating one search sales force for them to deal with. She added that she is confident Yahoo can hold on to their business in the waiting period as the deal undergoes regulatory scrutiny. "The advertisers aren't going to go away," she said.