The companies last month announced they’d begin testing adCenter ads on Yahoo in those countries. Organic results have been powered by Microsoft’s Bing for some time. Ramping of Yahoo traffic will begin as early as March 19, according to Microsoft. The paid search transition ie expected to be completed by the end of April in the UK, France and Ireland.

Yahoo Search Marketing account holders in these countries can use a migration assistant to port their accounts to Microsoft adCenter.

With the changes, all advertisers will be subject to new editorial policies created by the Search Alliance. Advertisers should also make adjustments to their budgets, given that traffic levels will increase with the changes.

Mittlerweile benutzen fast 10 Millionen Nutzer in Deutschland regelmäßig Bing, das sind 20 Prozent der aktiven Internetnutzer hierzulande.

According to several third-party sources, Bing’s market share is smaller than the 20 percent figure cited above. For example, the following is StatCounter’s search engine data for Germany:

Source: StatCounter

NetMarketshare generally agrees, showing Bing’s PC search share at just over 2 percent.

The combined Bing-Yahoo “search alliance” share in the US is about 30 percent. However the search alliance has considerably less reach in Europe. While the organic-results merger was completed last year, Microsoft adCenter is just now rolling out in Europe.

Related Entries

• Search Alliance Begins First AdCenter Testing In Europe
• December “Explicit” Search Numbers: Bing Now Ahead Of Yahoo
• Report: Google Controls 44 Percent Of Global Online Advertising
• Bing, Yahoo Now Neck & Neck In US Search Market Share

The first testing for the roll-out will commence mid-January and may involve up to 10% of Yahoo’s traffic in these geographies. Microsoft suggests advertisers closely monitor campaigns and be prepared to increase budgets if they’re more than 80% depleted. Testing and adjustments will continue until the companies are ready for a full roll-out, which is expected to be in the second quarter.

North American advertisers and publishers were transitioned to adCenter in 2010 and a new combined search marketplace was launched in India last September. In November, Microsoft said it was ready to begin expanding to Europe.

The algorithmic change — having Bing organic results serving on Yahoo properties — was accomplished (except for in Korea) last year.

In appointing Thompson, Yahoo is choosing a leader with a deeper technology and product background than prior CEO Carol Bartz who was abruptly terminated last September. In the interim Yahoo CFO Tim Morse has been serving as CEO.

Not going to sell itself now

There had been an expectation that Yahoo was going to sell itself or a significant minority stake to a private equity buyer or another company (perhaps even Microsoft). However the appointment of Thompson would seem to contradict that scenario. (Update: Yahoo Chairman Roy Bostock said in the Thompson press release that the company was still considering a sale of assets.)

Thompson was PayPal’s CTO prior to being named president. Before that he worked for a technology subsidiary of Visa. And before Visa he was CIO of Barclays Global Investors. The Yahoo board undoubtedly likes Thompson’s resume, which offers a diverse mix of skills and capabilities.

PayPal has been eBay’s most successful business unit of late, outshining its parent. Thompson’s departure from PayPal will be something of a blow but probably only a temporary one to the payments platform, which is seeking to establish a leadership position in mobile.

The larger and more important question is whether Thompson has the capacity to bring new vigor and focus to Yahoo, the company and the brand — both of which badly need innovation and energy. Another question is whether he’ll seek to bring in his own team or do any sort of reorganization. Numerous personnel changes and reorgs over the past few years have been damaging to Yahoo morale and momentum.

Confronting a range of challenges

Thompson and a renewed focus on product could help stabilize Yahoo. But what we might call “structural” changes in the online ad market (including the rise of Facebook and Google in display) have perhaps irrevocably eroded Yahoo’s once dominant leadership in its bread and butter segment: display advertising. Thompson is also going to be inheriting a search deal that has underperformed and failed to live up to revenue expectations for Yahoo.

What Thompson is not is an advertising or media executive. However current Yahoo EVPs Blake Irving and Ross Levinsohn can more than compensate in those areas, provided that they’re retained or stay, as the case may be.

Mobile is another area that Yahoo badly needs to focus on. While it had an early leadership position in mobile product development and advertising that has been entirely erased by Google in the past two years. Thompson’s knowledge of and experience with the mobile market may also be extremely helpful to Yahoo.

Does he have the right mix of skills?

I had earlier written that Yahoo needed to find its own version of Steve Jobs. That may be too much too ask. But perhaps in Thompson Yahoo will get a fresh start with a new CEO who has the right mix of knowledge, skills and temperament to pull the company out of its protracted slide.

Below is a video from the 2009 Web 2.0 conference in San Francisco at which Thompson spoke about PayPal and mobile payments.

Postscript: Yahoo has officially confirmed Thompson’s appointment as CEO. Yahoo Board Chairman Roy Bostock also indicated in the press release that the company is still considering a sale of some of its assets:

“Scott’s primary focus will be on the core business, and as CEO and director, he will work closely with the Board as we continue the strategic review process to identify the best approaches for the Company and its shareholders. As part of this process, Yahoo! is considering a wide range of opportunities for the Company’s business, as well as specific investments or dispositions of assets,” added Bostock.

Postscript II: Now a couple of reactions from financial analysts who cover Yahoo. They’re consistent, seeing Thompson as a positive hire but expressing some concern about his lack of experience with digital advertising.

Mark Mahaney, Citi:

We Are Marginally Positive On YHOO’s CEO Hire – Mr. Thompson was with PayPal for the past five years – he has been CEO of PayPal since 2008 and before that he was SVP and CTO of PayPal . . . We believe Mr. Thompson has strong technical and organizational skills (like Carol Bartz) and should bring that rigor to Yahoo!. His track record at PayPal was excellent. However, we are somewhat concerned that he does not have strong media/advertising experience, which we believe Yahoo! needs, given the structural issues surrounding the company’s Search and Display initiatives. And by selecting Mr. Thompson, Yahoo! is explicitly pursuing a Growth strategy, whereas we believe a Value strategy might be more appropriate.

Ben Schachter, Macquarie Capital (USA):

We’ve always been impressed with how Scott Thompson led PayPal, and believe that his experience and track record of execution rank him amongst the Internet sector’s more capable executives. YHOO should benefit from Thomspon’s leadership, but we must admit that we find the appointment somewhat surprising given Thompson’s background as a specialist in the online payments/technology space. YHOO has been in the midst of an identity crisis, unsure of its place on the Internet. We look forward to seeing how Scott defines Yahoo, but at this very early stage that vision remains unclear. All else equal, we would have preferred to see the Board hire a candidate with deeper experience in the online advertising/media space, but Thompson could surprise by defining and executing YHOO’s vision in an unexpected way.

NokiHoo maps are also available in other places around the world, such as Europe, but Yahoo doesn’t have the data or has incomplete data outside of the areas identified above. I did some searching in the UK around London and the data just aren’t there yet. In fairness to Yahoo they haven’t publicly announced areas outside the US and Canada.

When the NokiHoo deal was first announced in May of last year, I wrote that it would potentially improve Yahoo Maps and could open the door to Yahoo-branded mobile navigation or other map-based offerings. I assumed that it would make Yahoo Maps better and that the company might leverage a range of things that Nokia is doing, including Street View-like imagery.

In this initial relaunch none of that is in evidence. I’m generally not impressed.

Though this is only the first “iteration” and the maps cosmetically appear improved in certain ways, the addition of multiple search boxes creates complexity and potential errors. It’s also a step backward from the single maps search box used by Google, Mapquest, Bing — and even Nokia itself.

The “find a location” and “find a business” boxes are somewhat redundant. However if I use “find a location” (single search box vs. two for “find a business”) I get errors if the location isn’t obvious. Yahoo Maps uses IP targeting to set a default location.

You get almost an identical experience on Nokia Maps if you do the same searches. However I would argue the UI and general experience on Yahoo are better overall.

Nokia data is also going to take on a larger role over at Bing Maps as well, as part of the partnership agreement between Nokia and Microsoft. Nokia and subsidiary Navteq are the clear beneficiaries of these deals and may ultimately be able to claim Yahoo (and maybe Bing Maps) as part of the company’s local-mobile ad network. But that remains to be determined.

While there are multiple improvements or enhancements on the new Yahoo Maps “under the hood” (e.g., better routing) there’s nothing in the UI/UX to cause people to choose them over Google Maps. That’s the bottom line.

Specifically, Asian Yahoo search users in Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam will now get Bing powered results. In addition, they also migrated over more European countries such as Greece, Poland, Romania, Switzerland (German, French and Italian languages) and Turkey. In addition to the transition of Yahoo UK to Bing back in August, which included Yahoo UK, France, Germany, Spain and Italy.

Yahoo also said Austria, Denmark, Finland, Norway, Russia, the Netherlands, Sweden, plus several countries in MENA (in Arabic language) have been moved over and of course all the previous announcements.

There is no word on the paid search aspect of these new countries as of yet.

Remember, Yahoo transitioned to both Bing powered organic and paid results in the US a while back.

Related Services:

• Yahoo UK & Others Switching To Bing Organic Results August 3rd
• Yahoo Begins Testing Bing Powered Results This Month
• Yahoo Search Advertisers Can Now Begin To Migrate Accounts To Microsoft adCenter
• Yahoo-Microsoft Organic Transition Happening, Site Explorer, Search Monkey Holding For Now
• What’s New With Bing & Yahoo Search Alliance
• Official: Yahoo’s Results Now Come From Bing

[The decline was] primarily due to the required change in revenue presentation related to the Search Agreement and the associated revenue share with Microsoft. For transitioned markets (U.S. and Canada), Yahoo! now reports revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. Excluding the impact of these two items and the impact of the divestitures of Zimbra and HotJobs, broadband deferred revenue amortization, and certain fee rate reductions, revenue for the first quarter of 2011 decreased 8 percent compared to the first quarter of 2010.

Display revenue increased 10 percent but overall search revenue was down 19 percent (or more depending on the accounting methods used):

• Display revenue ex-TAC increased 10 percent to $471 million, compared to $427 million for the first quarter of 2010.
• GAAP display revenue increased 6 percent to $523 million, compared to $491 million for the first quarter of 2010.
• Search revenue ex-TAC was $357 million, a 19 percent decrease compared to $440 million for the first quarter of 2010.
• GAAP search revenue was $455 million, a 46 percent decrease compared to $841 million for the first quarter of 2010.

Here’s what Yahoo said specifically about “Search Alliance Costs and Reimbursements”:

Yahoo!’s results for the first quarter of 2011 reflect $56 million in search operating cost reimbursements and $11 million in transition cost reimbursements from Microsoft under the Search Agreement, which amounts are equal to the search operating costs and the transition costs incurred by Yahoo! in the first quarter. Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft’s search platform and the underlying expenses are removed from our cost structure. Our business outlook for total expenses reflects these anticipated savings. The net impact of the transition costs and transition cost reimbursements were neutral to total operating expenses in the first quarter, as expected.

Here are some of the earnings slides:

The search deal with Microsoft may have saved some costs for Yahoo but it has yet to bear fruit as promised when the search alliance was formed. Yahoo has some bright spots in display but otherwise it seems a company very much stuck in neutral.

Postscript From Danny Sullivan:

I generally don’t dive deep into our earning calls coverage, but the news of Yahoo having a drop of search revenues certain caught my ears. So, I’ve gone through the earning slides myself. A few questions and observations.

NOTE: You can read the section below, but I’ve also turned this into a more organized stand-alone article: The Yahoo Search Revenue Disaster.

“Contextual” Queries Don’t Earn?

First, there’s this metrics chart:

That’s all pretty rosy sounding. Search-related pageviews are reported as up over the past two quarters, first a 6% rise for the fourth quarter of 2010 compared to the same quarter in 2009, then a 3% rise for the same year-to-year comparison for the first quarter of 2011.

Search queries are also said as being up — double-digit rises, even.

So what gives with all these views going up but search revenues being down? I’d bet that the “contextual” searches that Yahoo has manufactured to generate pageviews that look good on paper aren’t doing the same for revenues.

The pageview figures are Yahoo’s own. The search queries come from comScore. But these are “core search” queries from comScore, not “explicit core search” queries that comScore also provides — and which exclude some of Yahoo’s manufactured searches, things such as where going through a slideshow in Yahoo News generates a new “search” on each click.

The articles below provide more information about this:

• Time To End The Bull Search Engine Share Figures?
• Q&A: comScore’s New “Core Search” & “Explicit Core Search” Figures

Search Revenues Down

Next, look back at that “Revenue ex-TAC by Source” chart above. I’ve pulled out just the search revenue-related figures to make a new chart from that, below:

The bars show the total amount of search revenue earned in each quarter, excluding any payments Yahoo owed partners in relation to generating this revenue. These payments are called “traffic acquisition costs” or TAC, in short.

The percentages above each bar show how much revenue dropped in that quarter versus the same quarter for the previous year. It’s all bad news. Yahoo tries to paint the last two quarters as merely “headwinds” caused by new payments it makes to Microsoft in relation to outsourcing its search services. Microsoft gets 12% of Yahoo’s search-related revenues.

Part of this seems correct. Last quarter, Yahoo says that it paid Microsoft $36 million off the net search revenues it earned. IE, in Q1 2011, Yahoo earned net search revenues of $357 million, but this was less the 12% it owned Microsoft on search revenue earnings. Before those were taken, it had earned (apparently) $393 million.

Hang on to that figure $393 million figure. I’ll be coming back to it. Yahoo didn’t report what Microsoft got for Q4 2010, but given the drop, it seems likely similar.

The problem with the drops is that Yahoo’s deal was supposed to let Yahoo keep earning as much — if not more — than ever before despite Microsoft’s skimming off the top. That’s how Yahoo pitched the deal. It would allow Yahoo to keep earning plenty on search, because Yahoo argued that search technology itself was just a “chip” that it could plug-in.

By borrowing Microsoft’s “Bing chip,” Yahoo would lose tons of cost involved with making that chip but still enjoy plenty of revenue. These figures paint a picture of that not being the case. The opposite, actually — thanks in part to the Microsoft-Yahoo deal, Yahoo’s earning less off search than ever before.

Microsoft Payments Aren’t TAC Payments

Keep in mind this important point. Microsoft gets 12% of search revenues after TAC has been deducted, not before. Yahoo’s earnings talk about reporting revenues on a new “post-TAC” or “net” basis. That gives the impression that Microsoft’s cut is somehow new, slicing further into revenues.

Well, it is new. But it’s not a TAC cost — payments that Yahoo makes to various distribution partners. Instead, it’s a payment that Yahoo makes over and beyond those other payments.

That leads to another chart I’ve made from the Yahoo earnings deck:

This is how much Yahoo has paid in traffic acquisition costs related to search. In other words, in the first quarter of 2010, Yahoo made $841 million in search revenues but paid $401 out to various partners in relation to deals to generate those revenues. That’s what the first bar shows, the $401 paid out, which was 48% of everything it earned. That’s what the percentage shows.

Something big happened in the last quarter. Yahoo’s search-related TAC massively dropped. What this was isn’t clear. I’m checking on it. It suggests that Yahoo has lost a major distribution partner (or two) that, despite costing a lot, was sending traffic that monetized very well.

Microsoft & Guaranteed Revenue

Under the terms of the deal, Yahoo is guaranteed a certain amount of revenue by Microsoft from when the deal starts. How much? I’m checking to see if I can get any solid figures. This is from what we originally reported on Yahoo-Microsoft deal, when it was announced back in July 2009:

Yahoo is guaranteed to receive payments for the first 18 months of the deal to match a “baseline” of what it was earning before the deal starts, we were told. How far back does the baseline go? We couldn’t get details on that.

The payments are even more important to know now because they might be masking even bigger drops with Yahoo is having with search revenues. Clearly, something type of “rebate” is happening already. Consider these figures from the most recent quarter:

1. Net search revenue, post Microsoft = $357 million
2. Payments to Microsoft = $36 million
3. Net search revenue, before Microsoft = $393 million

OK, (1) is the figure that Yahoo gave for net search revenues. As for (2), this is how much Yahoo said it paid Microsoft on net revenues, an amount that was deducted before the $357 million shown. As the Yahoo slide deck says:

YOY Growth in Search revenue ex-TAC $ and Total revenue ex-TAC were negatively impacted in Q1’11 by $36M and $63M in headwinds, respectively.

Got it? That’s Yahoo saying it earned $357 million and that the “headwinds” of paying $36 million helped produce that low $357 million amount. The $36 million came off the top, producing that final figure.

That’s where (3) comes in, the net search revenue that was paid before Microsoft. And that leads to these figures:

1. Net search revenue, before Microsoft = $393 million
2. 12% of net search revenue owned to Microsoft = $47 million
3. Amount actually paid to Microsoft = $36 million
4. Unaccounted for = $11 million

Why didn’t Yahoo pay Microsoft $47 million, rather than $36 million? I think the $11 million is a form of a rebate — that Microsoft promised that Yahoo would earn a certain amount, and if it fell short, it would deduct from what it was owed.

I did the same thing for Q4 2010 and found an $18 million gap. Yahoo paid Microsoft $32 million, but should have paid $50 million.

Here’s what I think is happening, after playing with a bunch of numbers and scenarios.

I believe Microsoft promised Yahoo that it would earn in any quarter about 92.5% of what it earned for that same quarter the year before. If it didn’t, then Microsoft would pretend that Yahoo earned that much and rebate an amount from its own share.

Here’s my figuring:

• Q4 2009 net search revenues = $473 million
• 92.5% of Q4 2009 as Q4 2010 baseline = $438 million
• Q4 2010 net search revenue, pre-Microsoft payment = $420 million
• Difference = $18 million
• 12% of Q4 baseline owed to Microsoft = $50 million
• Actually paid to Microsoft = 32 million
• Difference = $18 million

See? Microsoft guaranteed that Yahoo would earn at least 92% in Q4 2010 of whatever it earned in Q4 2009 — that that Microsoft would get 12% of that figure, or $50 million. But if Yahoo fell short, Microsoft would deduct whatever the difference was from that share. Yahoo fell short by $18 million, so that $18 million came out of the $50 million Microsoft would have earned.

Here it is again for the most recent quarter:

• Q1 201o net search revenues = $440 million
• 92.5% of Q1 2010 as Q1 2011 baseline = $407 million
• Q1 2011 net search revenue, pre-Microsoft payment = $393 million
• Difference = $14 million
• 12% of Q1 baseline owed to Microsoft = $50 million
• Actually paid to Microsoft = 36 million
• Difference = $14 million

Alternatively, it might be that Microsoft guaranteed that Yahoo would earn at least enough in net search revenues to pay Microsoft $50 million per quarter — and that if it didn’t, Microsoft would pay Yahoo any difference. That sure makes the calculations easier.

Yahoo looks to get four more months of this type of guarantee for four more quarters, reports AllThingsD.

Blame Microsoft, Says Yahoo

A final puzzling part for me revolves around the blame game that Yahoo’s doing. Why are its search revenues down? Aside from what it now has to pay Microsoft, it says that Microsoft’s ads aren’t working. From the Wall Street Journal live blogging:

The first quarter was “a mixed bag” for search. The good news, Ms. Bartz says, is that many of Yahoo’s most important advertisers are seeing much higher return on investment and thus spending more. But she takes Microsoft to task for technology problems. “It will take Microsoft longer to achieve the goals” that the companies have, she said, saying revenue per search should be back up where it used to be by the end of the year….

So there’s a weird situation in this deal with Microsoft: Some advertisers are apparently benefiting a lot from the new service, which seems to contradict the news that something is wrong with the technology. Microsoft’s ad tool “doesn’t have a good handle on” how to serve new ad buyers, Ms. Bartz says. So existing advertisers do well in the new system, but “many of the new advertisers can’t even get their campaigns in,” Ms. Bartz says.

OK, but the Microsoft ads went on Yahoo’s site back in October. Yahoo talks about the deal being in full effect from October. We know the Microsoft ads themselves started at the end of October. So why wasn’t Q3 2010 so down? Why did at least two months in that quarter work out just fine, then all the months after that have been trouble-ridden?

Well, I’m checking with Yahoo about this and some related questions. I’ll report back on what I learn.

Postscript: See our follow-up story, The Yahoo Search Revenue Disaster.

Yahoo Guilty for Linking to Infringer

Yahoo (in its capacity as a search engine) has been found liable for helping facilitate copyright infringement by indexing and linking to sites that allowed the unauthorized download of an Iranian film called “About Elly.” (It’s curious that this case wasn’t brought against Google, which has a market share in Italy of nearly 90 percent.)

Plaintiffs in the case were the film’s distributor and a media affairs company (PFA, Open Gate Italia). I’m unable to read the Italian reports about the case. But according to Sean Carlos at Antezeta, which is based in Italy, the decision says that once a search engine is notified of any alleged copyright violation they become liable for aiding the infringement if they don’t remove links to the offending sites.

Decisions about Organic and Ads Going Opposite Ways

It would appear that cases involving copyright or trademark infringement regarding “organic” content are going the opposite way from those involving trademark claims in paid search advertising. Increasingly Google and Yahoo/Bing by extension are being absolved of liability for trademark claims involving paid search ads. For example in the celebrated LVMH (Luis Vuitton) AdWords case, the French high court ruled that Google did not infringe trademark law by allowing advertisers to bid for competitors’ trademarks as keywords. (But see European Advocate General Finds Against Trademark Bidding in Interflora Case.)

What’s important here is that while individual advertisers could be held liable for infringement Google was not on the hook for their bad behavior (with some caveats). The YouTube and Yahoo cases feature the opposite outcome, making Google and Yahoo potentially legally responsible for all the content they index. In particular the Yahoo decision puts a heavy burden on the company to become an arbiter of copyright law or simply remove any links from the index once there’s a claim of infringement. Sean Carlos at Antezata argues this might lead to abuse by unscrupulous competitors.

Bad Decision Creates Practical Challenges

That’s less of a concern in my mind than the bad precedent. Assuming this decision stands it creates a host of practical challenges for search engines. For Yahoo and Bing those are potentially compounded.

Under the new liability rules announced by the court, Yahoo would need to pass infringement notifications on to Microsoft because Bing is now the organic index behind Yahoo Search. That relationship adds some complexity (and exposure) to the process because Microsoft would ultimately need to do the link removal or enforcement.

What if Yahoo is notified of an alleged infringement and then conveys that to Microsoft and then Microsoft fails to act. Plaintiffs sue and Yahoo points at Microsoft as the party that failed to act?

Overall it’s a mistake to hold search engines to the same legal standards as traditional publishers, concerning libel and copyright law. The scale and scope of search is very different than conventional publishing or TV broadcasting. Indeed, search engines don’t have control over the many millions of sites they index.

But Italy’s regulators and courts won’t hear any of it. They’ve apparently had enough of this internet thing.

(Image via Shutterstock)

Related Entries

• European Advocate General Finds Against Trademark Bidding in Interflora Case
• Italian Court Finds Google Execs Guilty Of Violating Privacy Code
• Italy To Regulate YouTube & Other Video Sites Like TV Stations
• Google Wins Legal Battle Over AdWords Trademark Issue In Europe
• Europe Needs Bing, But Does Bing Need Europe?

According to this Yahoo blog post, Bing is now powering the Yahoo back-end for organic search in:

• Australia
• Brazil
• Mexico

Bing started powering Yahoo’s organic results in the US and Canada last August.

These “apps” allow users to do a number of things from within the search results. For example, Sketch-a-search allows users to launch a window and search for restaurants by drawing a custom geographic area on a map.

The Restaurant Comparison Quick App builds a grid display of similar restaurants (or geographically relevant restaurants) and enables users to compare them across a number of criteria. You first search for a restaurant and then select the “compare similar” button (there’s also a “make reservation” button powered by OpenTable).

For a fleeting moment this grid reminded me of Google Squared. However Google Squared is still highly experimental and not very useful, except in a few situations.

I assume that tagging and some sort of back-end taxonomy or classification scheme enables the Quick App here to deliver comparable local restaurants to the one searched for (hence my Pandora analogy). I found the results to be pretty good though somewhat uneven in terms of alternative recommendations. Still it’s useful as a discovery tool.

It’s also especially interesting to see all this structured data and functionality being delivered directly in the SERP. Yahoo is starting to make good on its promise to “innovate around the UI” and search user experience. These Quick Apps are some nice examples of that effort.