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Three things to watch

The obvious motive for Microsoft is to beef up for competition with Google, but the alliance could create additional opportunities, Catherine McLean writes

Globe and Mail Update

Mobile Search

There's nothing Internet search giants like Yahoo or Google would like more than to persuade consumers they can also use this feature on their cellphones as well as on their PCs at home or work, but they clearly have more work to do.

While 327 million people around the world used mobile search functions in 2007, they generated just $63.1-million (U.S.) in advertising revenue, according to research firm eMarketer. By 2011, eMarketer reckons, there will be about 900 million mobile search users, bringing in ad revenue of $2.4-billion.

"It's certainly an area of growing interest," said Sameer Mithal, senior principal at Interactive Broadband Consulting Group.

There is no clear leader in this business right now, observers say, so Microsoft, Yahoo and Google are vying for domination. Mr. Mithal believes Microsoft and Yahoo could make inroads in this area by joining forces. Microsoft could embed Yahoo applications in its Windows Mobile operating system instead of forcing users to download them separately.

More people are expected to use Internet searches on their cellphones as so-called smart phones, such as BlackBerrys, find their way into consumers' pockets. In turn, websites are expected to become friendlier for mobile searches as operators deploy software that can detect whether a visitor is on a cellphone or PC, according to Mr. Mithal.

Moreover, GPS (global positioning system) technology should also spur use of Internet searches on cellphones, says In-Stat analyst Bill Hughes. People will start to find it handy, for example, to look up all the cafés nearby.

Online Portals

When two rivals get together, they clearly have a lot in common. That means there would be plenty of duplication if Microsoft and Yahoo joined forces, and not just when it comes to jobs, stationery or online music stores. In Canada, there's the question of what would happen with their duelling Internet portals.

MSN's portal is a joint website with BCE Inc.'s Sympatico Internet service, while Yahoo chose to partner with BCE rival Rogers Communications Inc. for its portal. Many people use these portals as their home pages, the first website they look at when they turn on their computer.

It's too soon to say what will happen to these portals if a Microsoft-Yahoo union does go through, but it's debatable whether BCE and Rogers would be willing to have portals with similar content from the same owner since the whole purpose is to differentiate their services. They had little to say on this topic yesterday.

"Today, MSN is in a strategic alliance only with Bell Sympatico to offer Sympatico.msn.ca, one of the most visited portals in Canada with more than 20 million unique visitors each month," said Paolo Pasquini, a Microsoft spokesman in Canada.

Spokespersons at BCE and Rogers declined to comment.

In Canada, Microsoft's websites are No. 1 when it comes to unique visitors, with Google in second place and Yahoo in third, according to ComScore MediaMatrix.

Iain Grant of telecom consulting firm SeaBoard Group figures Rogers may be more willing to cut its ties with Yahoo since there is far less integration between the two than MSN and Sympatico, which he calls "Siamese twins."

Rogers recently sealed a new deal with Yahoo in which the two share ad revenue instead of Rogers paying portal fees to Yahoo. BCE and Microsoft launched their joint portal in 2004 in a five-year agreement.

Display advertising

Yes, Google has demonstrated that Internet searches for every topic under the sun bring in plenty of ad revenue. It may be all but impossible for Microsoft and Yahoo to close the gap with Google in this area, but there's another lucrative ad field for them.

Banner and display ads are found on content, rather than search websites. They tend to be bigger and have accompanying photos for everything from pizza to eBay auctions. While Google is best known for its search website, Yahoo and MSN have created websites packed with different content, including news and music.

In the United States, Yahoo websites had 18.8 per cent of the market for Internet display ads in November, while Microsoft came in third at 6.7 per cent, according to ComScore MediaMatrix. That would give the combined company a big lead over Google, which ranked seventh with just a 1-per-cent share.

"If I were in the shoes of Microsoft and Yahoo, I would take second place to Google in search and focus heavily on dominating the brand advertising arena," said Shar VanBoskirk, principal analyst with Forrester Research Inc.

She said the two kinds of websites attract different ads. Ads on search websites try to direct people directly to products. Display ads are all about making an impression on an audience.

With files from Matt Hartley

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