AllThingsD reported that the Softbank majority owned Yahoo Japan has decided to replace Yahoo Search (soon Yahoo-Bing) with Google. Yahoo owns a minority stake in Yahoo Japan and so can’t control or block the decision.
According to a statement released by Yahoo it will “support” the deal as it is contractually bound to do:
Yahoo! Japan announced that it has chosen to implement Google as its backend algorithmic search engine and paid search infrastructure. Yahoo! Japan made this decision as an independent and separate publicly traded company, in which Yahoo! holds a 35% equity interest. We amended our agreement with Yahoo! Japan as a result of this decision, and we do not anticipate that this amendment will have a material financial impact on our revenues. We will provide support, as required by our agreement, for the search experience Yahoo! Japan has chosen for its business, and we will continue to partner closely with Yahoo! Japan in other areas including mail, messenger, mobile, our content properties and more.
This decision by Yahoo! Japan does not impact the global rollout and implementation of the Yahoo! search alliance with Microsoft, except in the Japanese market. We remain confident in our transition plans for the search alliance, are driving innovation in the user experience around search on the Yahoo! network, and continue to be committed to our alliance with Microsoft.
This is significant because, according to comScore, Japan is the third largest search market after the US and China:
Needless to say this is somewhat embarrassing to Yahoo and frustrating as well as it and partner Microsoft are rolling out their search integration. Kara Swisher speculates that Microsoft may try and convince Japanese regulators to block the Yahoo Japan-Google deal:
In any case, if Yahoo Japan and Google do buddy up, it’s clear that Microsoft will likely try to block the deal from gaining regulatory approval in Japan, much in the same way it did successfully when Google tried to enter into a deal with Yahoo in the U.S. in 2008.
Postscript: Here’s an official statement attributed to Brad Smith, Microsoft senior vice president and general counsel, which indicates Microsoft will try to stop it:
“This agreement is even more anticompetitive than Google’s deal with Yahoo! in the United States and Canada that the Department of Justice found to be illegal. The 2008 deal would have locked up 90 percent of paid search advertising. This deal gives Google virtually 100 percent of all searches in Japan, both paid and unpaid. It means there will be no search competition in Japan and that Google will end up controlling all personal search information for all Japanese consumers and businesses.”
Postscript II: Mark Mahaney of Citi provided some additional detail and color in a note following the Yahoo Japan earnings call earlier today:
At a press conference announcing its first-quarter earnings, Yahoo! Japan (YJ) stated that it will switch over to using Google within the year. As key context, YJ is a separate, independent company, although Yahoo! does own a 35% stake. Further, YJ has approximately 57% share of the Japan Search market, while Google currently has about 38%.
Additional Key Details – Most terms of the deal have not been disclosed, but the length has been reported to be 2 years, with a 2 year extension option. Also, YJ stated in a press release that it had consulted with Japan’s Fair Trade Commission prior to concluding the deal. In announcing the deal, YJ management stated that a key factor behind the decision was its view that Microsoft’s Japanese language Search technology was not sufficiently strong enough for its needs.
The idea that Yahoo Japan had previously consulted with regulators suggests that Microsoft may not be able to block the deal. However the combination of 57 (YJ) and 38 percent (Google) search market share means that Google would effectively control 95 percent of search in Japan. That seems like a dealbreaker and would be in the US or EU.