Microsoft-Verizon Deal – Will the Impact Be Greater Than The Sum Of Its Parts?

On January the 8th 2019, Verizon Media, formerly Oath, and Microsoft announced a new multi-year global native advertising deal. Through this deal, which launches this month, marketers will gain additional access to 20 percent more native inventory through Verizon’s ad platforms with high-performing ad formats on Microsoft News/MSN, including exclusive placements. Additionally, the companies have extended their existing relationship, which delivers unrivaled access to brand safe video, display and content marketing solutions across Microsoft properties globally including MSN, Outlook and XBox.

With Microsoft properties reaching almost 500 million people every month, Verizon’s ad platforms will deliver high quality native ad opportunities across every page of Microsoft News/MSN in more than 30 countries around the world. Native ads on the MSN homepage and article pages offer a larger storytelling canvas for brands, including some exclusive placements only available through Verizon ad platforms. As programmatic native inventory becomes available on additional Microsoft properties, this inventory will also be available through Verizon.

Industry sources estimate that the enhanced partnership could result in an increase in clicks across the Bing Ads marketplace for customers targeting the United States of up to 10-15%.  After March 31, the Verizon paid search traffic will stop completely and 100% of the Yahoo Search Network traffic will be served by Bing Ads.

While such consolidation is important for diluting the dominance of Google as a search engine and advertising platform, a look at the numbers serves to illustrate that the net impact of this consolidation will be relatively slight, even in the United States. So far, given how recent this development is, much of the information about the Microsoft-Verizon deal has emanated from press releases associated with these two companies.

An objective look at the market share and ad revenue spectrum of the incumbents in this industry  is needed before heralding a consequential shift in the digital landscape. A look at the following numbers will provide a measure of this perspective.

Net US Search Ad Revenues, by Company, 2019, billions, % of total:  

Google, $36.62, 80.2%, Microsoft, $3.02, 6.6%, Yahoo $1.04, 2.3%, Verizon (AOL), $0.22. 1.1%

And here are the top search engines by market share in the United States and globally.

USA – Google: 87.28%, Bing: 6.91%, Yahoo!: 4.65%, DuckDuckGo: 0.59%, MSN: 0.21%, Other: 0.36%

Global – Google: 92.25%, Bing: 2.41%, Yahoo!: 2.07%, Baidu: 1.01%, YANDEX RU: 0.63%, YANDEX:0.48%

Scoring the other side of the ledger, Merkle, a leading performance marketing agency, estimates that Google will take a hit to its revenue and volume from this change. Yahoo has been running Google Shopping Ads since early 2016 and likely generates between 2% and 3% of Shopping ad clicks for Google. Shopping ads now produce nearly two-thirds of retailers’ Google search ad clicks.

Yahoo’s Gemini search platform produces between 1% and 2% of U.S. search ad clicks, so Merkle estimates Microsoft will gain back shopping ad traffic that Google has been serving on Yahoo since 2016.

“While the incremental click share increase to Bing will be relatively small, about 2% net increase, this is a tremendous move for the industry,” wrote Matt Mierzejewski, senior vice president of search capability lead at Merkle.

Mierzejewski explained that the move takes some disparate inventory and combines it. “In my opinion, Microsoft Bing should make more partnership plays, such as Google’s bid to pay Apple Safari a reported $12 billion to remain its default search engine,” Mierzejewski wrote.

The unromantic truth is that the biggest challenge Microsoft still faces is gaining mobile users. Google is the default search provider for the two major mobile platforms. Just 22% of Bing search came from mobile devices in the fourth quarter of 2018, compared with 61% from Google.

The Economist, in its publication, The World in 2019, predicts that mobile’s share of digital ad spend will surpass 60% this year. If Microsoft and Verizon are to make an appreciable impact in digital advertising, they will have to be much much greater than the sum of their parts on mobile.

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