Why Microsoft Really Wants Yahoo’s Search  

Posted by Mohammad Talha in , ,

We normally hear from people that the only reason Microsoft wants to buy Yahoo! is because of Yahoo’s search technology and its user base, True but that is not the whole story and the rabbit hole goes little more deeper than that. Microsoft pretty much dominates two of the most important platform’s Operating System and Browser, and we know “Platforms almost always win against the Applications built on it”. So Microsoft will sooner or later get traffic to its web services because of its platform dominance, the problem is how to monetize that traffic, that is where Yahoo and its 361 Patent comes into picture.

361 Patent was the brainchild of Bill Gross, founder of IdeaLab who had this great idea of monetizing search results by showing the users advertising based on the keywords they type, he though of it as an Yellow Pages on the Internet where users could search what they want and they were ads too. This idea was shamelessly stolen by Google who before this made zero revenue. Bill Gross who later found Overture Services (formerly GoTo Inc), which was bought by Yahoo and in turn Yahoo had the right’s to this crown jewel “361 Patent”.

Once Yahoo got the rights to ‘361 Patent’, it started enforcing other companies who were licensing it from Overture Services to follow its rules. One of the biggest licensers from Overture was Microsoft who were paying hefty fees for it. Now Yahoo started making life hell for MSFT when it came to Paid-Search advertising. This made Microsoft less innovative in search because no matter how good their search was, they always had to toe the Yahoo’s line when it came to monetizing the search and paying most of the money to Yahoo for using the “361 Patent”. It just didn’t seem practical for Microsoft to innovate when they can’t make money of their search or pay most of the money to Yahoo.

Whereas Google got the patent licensed in a very shady deal where nobody clearly knows how much they paid and it gave them an edge in Paid-Search advertising. The reason they got a good deal from Yahoo might be because of their Stanford roots or because of common VC’s. It was a clear conspiracy by Yahoo to make the battlefield uneven and making Microsoft insignificant in Paid-Search model. It is a payback time for Microsoft and boy are they doing it at the right time. Microsoft is known to come late to war and be the last one standing, will they do it again.

You can read more about 361 Patent and its repercussions in Usman Latif’s website here. He has written a detailed and well written article on this. (Link)

This entry was posted on Dec 20, 2008 at 11:06 AM and is filed under , , . You can follow any responses to this entry through the comments feed .

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