Michael Arrington still doesn’t understand search

Michael Arrington has once again called for a Microsoft-Yahoo! merger. Arrington’s support for one of the most stupid ideas in the history of search technology is amazingly blind.

The only Yahoo! stockholders who stand to gain anything from this proposed merger will be those who take the money and run. Frankly, I don’t see how any Microsoft stockholders can possibly benefit.

There are a lot of things confusing the issues and Arrington’s lack of understanding on these fundamental topics are powering his useless remarks on the subject.

First and foremost are the bogus search market share estimates published by Compete, comScore, Hitwise, and Nielsen. These companies measure search market share in terms of number of searches performed, which tells us absolutely nothing about search-generated revenues, search-generated traffic referrals, or search-generated consumer influence.

Secondly, Microsoft continues to build traffic for its Live Search site. According to Compete’s estimated traffic for June 2008, Microsoft’s Live.com received approximately 80 million visitors, nearly a 5% increase over May 2008. Google’s traffic has pretty much topped out. The MSN Web site received an estimated 77 million visitors, a 2.6% increase in traffic over May 2008.

Microsoft’s marketing is starting to pay off but the people who should be most interested in this rapid growth in search market share — Microsoft’s stockholders — seem to have been blinded by Steve Ballmer’s desperate ploy to plunge the company into needless debt.

If Microsoft acquires Yahoo!’s search property, what will they do with the brand? You cannot just 301-redirect 130,000,000 visitors to MSN and Live.com (not the least because you have to pick between one or the other for the redirect). People who are loyal to the Yahoo! brand will want to stay with the Yahoo! brand.

Which brings us to a third point: no one seems to be able to measure core search market share. That is, how many people are actually loyal to Ask, Google, Live, and Yahoo! search? Each search engine has its own dedicated audience and they share the rest of their audiences with 1 or more other search engines. If Yahoo! and Microsoft have relatively small cross-over appeal then blending the brands makes no sense. Microsoft will lose one core audience or the other.

Yahoo!’s advertising revenues are really not driven by their search technology. It’s Yahoo!’s content network that really brings in the money. In fact, Yahoo!’s search traffic is only a fraction of its overall traffic, where Microsoft’s Live traffic is larger than its MSN traffic (and some of that MSN traffic is in fact devoted to search).

Bundling Yahoo!’s inferior search technology into Microsoft’s superior search technology doesn’t make any sense because Microsoft has shown that it can go head to head with both Yahoo! and Google and pull people to its own properties. You don’t get an estimated 80 million monthly visitors with crappy search results.

What seems to be at the heart of this slow-motion search implosion is Microsoft’s quest to expand its search related revenues. AdGooroo has just reported that Microsoft’s advertising revenue has dropped 20%. That’s a huge loss in revenue, and it undoubtedly reflects a loss of faith by the search marketing community in Microsoft’s ability to reach searchers — a loss of faith powered in part by the nonsense statistics that Compete, comScore, Hitwise, and Nielsen foist upon us each month.

We’re regrettably watching the greed of two men — Steve Ballmer and Carl Icahn — disassemble potentially billions of dollars in shareholder value by pressing for a merger that will ultimately result in the collapse and near-complete dissolution of a major search brand. Yahoo! has already proven that buying up search engines doesn’t build long-term market share. Yahoo! made a good decision to buy its own search engine back when it was just a directory, but the subsequent decisions to consolidate search brands under the Yahoo! banner didn’t really work.

If Microsoft had no search technology and wanted to get into the market, then buying a search engine would make sense. However, Microsoft already has a pretty good search technology that continues to improve. Steve Ballmer appears to be deadset on throwing that vital market advantage away in a hopeless quest for Yahoo!’s failing technology.

Michael Arrington may just be a talking head in the media but he is supposedly the tech sector’s pet talking head. He should at least understand what’s going on well enough to see just how bad a move the Microsoft-Yahoo! merger would be for everyone.

Consumers lose out because competition will DECREASE (by eliminating 1 of the top 3 brands). Searchers will lose out because they’ll have one less search technology to turn to when they cannot find content. And advertisers will lose out because they’ll have one less alternative search network to turn to when bidding becomes too expensive on Google.

I’m glad I don’t own any stock in either Microsoft or Yahoo!. If I did, I would sell it today and walk away from these two companies. They are locked in what appears to be a death-struggle, and at least Jerry Yang has sense enough to recognize that for what it is.