Broken Math

december 6, 2008

So, Yahoo! is Steve Ballmer's favorite toy.  But, does he really believe the words coming out of his own mouth?  Maybe I am overthinking this.  This is a quote from Ballmer after his recent toying around with the Yahoo! stock price:

Look, the fundamental basis for doing the search deal with Yahoo has to do with critical mass in the advertising marketplace. It doesn't have to do with technology, or any of these other things, it really is a market phenomenon. Together we would have more advertisers...which means we'd have more relevant ads on our page. We'd have higher monetization levels possible in front of us because there would be more people bidding on more key words. Most importantly, Google would have perhaps a real credible competitor sooner.

Seriously?  From one Steve to another:  If Microsoft is doing a search deal with Yahoo! only because it thinks that putting Yahoo! advertisers with Microsoft advertisers would make a boatload of money, Microsoft has missed the point.  Yes, there might be a small gain in advertisers and advertising dollars.  The reality is that the gain will not be twice as much (or however much Ballmer thinks it might be). Here is how I see it.  Say you're a small business, you sell maggots to fishermen.  You have $5000 of advertising dollars to spend on search advertising.  Currently, you are spending it equally between Google, Yahoo! and Microsoft. Next month, you find out that Microsoft has done a search deal with Yahoo!.  Do you continue to spend double what you spend with Google on a Microsoft/Yahoo! combination?  No.  Suddenly, with Microsoft doing a search deal with Yahoo!, the game has gone from a three-player game to a two-player game.  How do the advertising dollars get split?  In half.  Half for Google and half for Microsoft/Yahoo!.  It is the logical way of spending your money. Yes, by combining Microsoft and Yahoo! search in some wacky search deal, the dollars do increase for Microsoft.  But, more importantly the dollars also increase for Google.  It does not make sense to me, but hey, who am I?  Microsoft would actually be helping Google make more money with a search deal with Yahoo!. Maybe my math is wrong?

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