On the surface, Microsoft's $44 billion offer to acquire Yahoo! seems to simplify the US search market share race.
The combined firm would be second in online ad revenues to No.1 Google, and ahead of AOL. In 2007, Google rang up nearly $6 billion, while Yahoo! had about $3.4 billion and MSN had $1.4 billion net revenues.
The top four portals totaled $12.2 billion in online ad revenue for the year.
eMarketer's projections put this at more than half of the $21.4 billion market total.
For search ads in particular, Microsoft-Yahoo! would have roughly 18% market share of the search-based ad market, compared with 75% for Google, according to Sandeep Aggarwal, analyst at Oppenheimer & Co., as cited in a Wired article.
eMarketer put search advertising spending at more than $8.6 billion in 2007.
Bradford L. Smith, Microsoft's general counsel, said in a statement that a combined Yahoo!-Microsoft would have 30% of the US search market, compared with Google's 65%.
But the prospective deal raises many questions. Wired snarkily asked "Do Two Losers Make a Winner?"
"Microsoft and Yahoo's offering would make them much more competitive, but I do think that individually they've been losing share," says Zorik
Gordon, CEO of ReachLocal, in the article. "While the combination will help, it doesn't address why they've been losing share."
eMarketer senior analyst David Hallerman noted that the deal itself is a long way from finalized.
"Just as many observers simply assumed that the unbeaten Patriots would win the Super Bowl and were wrong, you cannot assume that just because Microsoft is slinging around huge sums of money that they will win Yahoo."
"And who says that an extended potential purchase will benefit either Microsoft or Yahoo!, even if Microsoft 'wins' Yahoo!?," Mr. Hallerman added. "Combining two very different corporate cultures, especially if Microsoft gains Yahoo! through a hostile takeover, is very chancy."
Google is already pushing to have any deal reviewed carefully by regulators. The New York Times reported that the firm has also offered to help Yahoo! potentially avoid a hostile takeover.
In terms of revenue and technology, Microsoft and Yahoo! both have more than just search going on. Both firms have millions of IM and Web-based e-mail users. Microsoft also has something called Windows that has proven fairly popular.
As for online ads, the combination of Microsoft's aQuantive division with Yahoo!'s Blue Lithium and Right Media ad segments could create a powerful online ad network for brand marketers.
Yet if the the deal goes through, search will be the main point of competition between the combined firm and Google.
Search ads will comprise 40% of the online advertising market for the next several years. Moreover, online advertising has been a bright spot of growth in an otherwise lackluster ad market.
The competition matters to advertisers and marketers. It is unclear, for instance, if online ad prices would rise or fall over time as a result of one fewer player in the market. Fewer competitors would seem to mean higher prices, but price wars could move prices down, and search technology advances could change the cost of doing business altogether.
Search was already a dynamic market before Microsoft proposed this deal. No major player has yet cracked mobile search, for instance, which promises more users than PC-based search.
Competition for Yahoo! and its search business promises to make the market even more interesting.
Get the big search picture. Read eMarketer's Search Engine Marketing: User and Spending Trends report.