Microsoft-Yahoo Search Business Case
description
Transcript of Microsoft-Yahoo Search Business Case
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Analyzing decision of the European Commission
Microsoft | Yahoo! Search Business
Competition, Strategy, and Institutions Yulia AN | Yulia MIRONOVA
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Decision of European CommissionMarket overviewPositive effectsNegative effectsPost-transaction analysisConclusion
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European Commission
Parties
Microsoft Yahoo!
Online web-wide algorithmic search
Search advertising businesses including online search advertising platform Panama.
Internet search platform, Bing. Online search advertising
platform, adCenter.
Online Services Business division
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European Commission
Subject 10-year exclusive license to Yahoo's search technologies.
Yahoo internet search and search advertising staff.
Microsoft as the exclusive internet search and search advertising provider used by Yahoo.
12% of the search revenues generated on Yahoos and its partners' websites during the first five years of the agreement will go to Mirosoft.
Rest 88% will go to Yahoo as a traffic acquisition cost.
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European Commission
Decision
Horizontal Merger approved
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European Commission
Market overviewPositive effectsNegative effectsPost-transaction analysisConclusion
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Organic web search
Search-based advertising
Non-search-based advertising
Contextual
Text
Contextual Non-context
Text Display Display
Adapted from European Commission (2008)
Market overview
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010
20
30
40
50
60
2010 2011 2012 2013 2014
Paid search Display Classified
Source: ZenithOpen
Market overview
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Advertisers
Users
Market overview
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AUZero-price consr
aint
Auction bidding:
Generalized Second-Price
Market overview
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AU~ Single-homing
~ Multi-homing
Market overview
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Market overview
Production costs Switching costs
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Market overview
Production costs Switching costs
Highly specific fixed costs Negligible variable costs Sunk
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Market overview
Hardware (USD 1 000 mln) Human capital (USD 1 000 mln) Server infrastructure IP patents Algorithm development Algorithm update R&D
Production costs Switching costs
Highly specific fixed costs Negligible variable costs Sunk
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Market overview
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
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Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
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Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Network externalities
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Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Network externalities
High entry barriers
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Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Network externalities
High entry barriers
High market concentration
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Market overview
GoogleYahoo! BingOther
UK France Germany
Ireland Italy SpainDigital Clarity. (2011). Yahoo & Bing Search Engine Merger. Available at http://www.digital-clarity.com/blog/search-engines/yahoo-bing-search-engine-merger/
92% 94,76% 95,69%
94,67% 97,54% 96,96%
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European Commission Market Overview
Positive effectsNegative effectsPost-transaction analysisConclusion
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Microsoft Yahoo!
Economies of scale Reduction of costs
Positive effects
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Microsoft Yahoo!
Economies of scale Reduction of costs
Rationalisation of operational costs Stronger competitor to Google Greater value to advertisors
Positive effects
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European Commission Market overview Positive effects
Negative effectsPost-transaction analysisConclusion
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Merger
Advertisers
UsersPublishers
Distributors
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Merger
Advertisers
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Merger
Advertisers
Increased cost per click (CPC) increased bidder density for
particular keywords
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Merger
Users
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Merger
Users
reduction of variety of choice degradation of organic search unilateral effect
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Merger
Publishers
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Merger
Publishers
increased competition among publishers reduced competition between the remaining
advertising platforms lower prices paid for publishers web space
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MergerDistributors
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MergerDistributors
reduced competition between search platforms for distribution agreements
increased Microsofts ability to leverage its market power in areas other than online advertising
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European Commission Market overview Positive effects Negative effects
Post-transaction analysisConclusion
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0,00%10,00%
20,00%30,00%40,00%50,00%60,00%70,00%80,00%90,00%
100,00%
July 2009 April 2014
AOL, Inc.
Ask Network
Microsoft sites
Yahoo! sites
Google sites
Post-transaction analysis
64,7% 67,6%
19,3% 10%
8,9% 18,7%
Total U.S. search market share Home & Work Locations (2009, 2014). ComScore Explicit Core Search Share Report. comScore qSearch
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Post-transaction analysis
10%13%
22%
37%
-10%
14%
-20%
-10%
0%
10%
20%
30%
40%
Impressions ClickthroughRate
Cost-Per-Click
Yahoo! Bing Network Google
U.S. Percentage change of the main search market indicators of Yahoo! Bing Network and Google on a year-over-year basis (Q4 2011 Q4 2012)
Marin Software. (2012). Online Advertising Report, October-December 2012
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Post-transaction analysis
Consumer surplus under normalized network benefit parameters
Iurkov, V. (2013). Competition, mergers and exclusive dealing in two-sided markets with zero-price constraints: The case of search engines. Universita CaFoscari Venezia.
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Post-transaction analysis
Total welfare under normalized network benefit parameters
Iurkov, V. (2013). Competition, mergers and exclusive dealing in two-sided markets with zero-price constraints: The case of search engines. Universita CaFoscari Venezia.
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Post-transaction analysis
A merger between two platforms leads to a slight decrease in consumer surplus and total welfare, but to an increase in total platform profits.However, as t , consumer surplus and total welfare tend to be equal under no merger and merger configurations.
Iurkov, V. (2013). Competition, mergers and exclusive dealing in two-sided markets with zero-price constraints: The case of search engines. Universita CaFoscari Venezia.
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European Commission Market overview Positive effects Negative effects Post-transaction analysis
Conclusion
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Discussion
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ReferencesPhotography of Microsoft Office by Jeff Wong, www.jeffwongdesign.com/2013/10/microsoft-office-interior