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paidContent - Deal Talk With Yahoo's Schneider, Microsoft's Mehdi: Adding Display 'Is Like Boiling The Ocean'

This story was written by Staci D. Kramer.
Yahoo’s Hilary Schneider and Microsoft’s Yusuf Mehdi spent months making today’s search and advertising deal happen—and they’ll spend countless hours making it work. In between, they spent some time explaining to paidContent’s Staci D. Kramer, David Kaplan and Joseph Tartakoff some gaps like display advertising; some details, including whether the Newspaper Consortium will use Bing; and what this might mean to AOL (NYSE: TWX) and MySpace. Mehdi is SVP of the Online Audience Business Group at Microsoft; (NSDQ: MSFT) Schneider is EVP of Yahoo (NSDQ: YHOO) North America. An edited transcript of the interview follows; their explanation about why mobile search isn’t exclusive as part of the deal can be found on sister site

Staci D. Kramer: Why isn’t display advertising part of this?

Yusuf Mehdi: We wanted basically to be able to keep it simple while deriving a lot of value. We think the focus on paid search in particular really did create a lot of value and was something we could effectively bite up and chew in the first go round to implement. We feel very good about that piece and the opportunity. I think there’s a lot of value to create in that area.

Hilary Schneider: I think the other way to think about it is we do believe in the KISS theory—keep it simple. It’s better to walk before you run, run before you fly. I would say adding display, to use one of Carol’s favorite words, it adds boatloads of complexity. It’s boiling the ocean. This is absolutely the right deal for us to do today.

Staci D. Kramer: Are you concerned at all about getting stagnant in the next year while this in progress—even before the approval, of stopping innovation, of creating roadblocks inside your own company?

Hilary Schneider: I would say, from our perspective, we’re full speed ahead on everything we’re currently doing up until the point that we get approval. We have a current product roadmap, current go-to-market plans. There’s nothing about this announcement that will put any decelerator on what’s currently in place, both on the ‘algo’ innovation side, what we’re doing to ensure we’re continuing the really nice growth in query volume we’ve seen over the last couple of quarters and also on the paid search side. At the same time, we are hoping to quickly integrate once we do get approval.

Joseph Tartakoff: Which of Bing’s user interface features do you see coming to Yahoo search or being added to it?

Yusuf Mehdi: The way we’ve constructed the partnership is we’re effectively providing to Yahoo an API of the text, image and video that powers all of the results in the same parity that we provide for ourselves. Then over time what we do is we add value on top of that to things like shortcuts, answers or applications if you will, like search history. As we put more and more into our API, Yahoo is going to get full access to all of that. Then they retain the flexibility to add and build on top of that and build their own user experience. They can build their own local applications. hey can do their own user experience experimentation and we will share in that and learn [from] that to then fold it back into the overall platform.

Hilary Schneider: It was important to Yahoo to retain full flexibility over the user experience because it’s integral to the overall user experience at Yahoo and the way we think about search and discovery horizontally across the sites and services we deliver. Our innovation is going to be associated with how we integrate, and deliver with relevance, unique content that we have. If you think about Flickr, Answers the set of experiences that we deliver, it will be driven by the unique components that are Yahoo and really blending those into the search results in a way that we think will give Yahoo users the best experience.

Staci D. Kramer: As you were playing with the new front page, was being able to switch out search technologies or implement new technologies part of what you had in mind?

Hilary Schneider: Honestly, the new front page has been in development for a while. We’ve actually been bucket testing it for over six months. I think it’s a nice convergence that really speaks to out overall strategy. We want to bring best-of-breed experiences so we can continue to the be the place that millions and we hope billions of people come on a daily basis. It’s in keeping with our approach to search partnerships, which once again will, we think, create a better experience for our users long term.

David Kaplan: Are there any benefits to the Yahoo Newspaper Consortium from the deal with Microsoft?

Hilary Schneider: Just to clarify, the Newspaper Consortium is a broad-based partnership that does include search today. And so, by virtue of this partnership, weve already talked with several of the newspaper consortium CEOs today and theyre highly supportive. What this essentially means is that the search partnership we have with them will continue. They will be an affiliate and that affiliate platform will be powered by Bing.

David Kaplan: Back in September, when Yahoo launched APT, the display ad delivery and targeting system for the Newspaper Consortium, you hinted that the platform might eventually encompass search too. Does the pact with Microsoft make that more likely that APT would be able to avail itself of Bing as well?

Hilary Schneider: APT is absolutely delivering its base for the newspapers, with the ability to deliver meaningful results for local advertisers and helping them capture significant share in their local marketplaces. We think that the same model can absolutely work for re-selling of search and that is something well be excited to talk to them about in conjunction with the way we create value long term.

Joseph Tartakoff: Do you expect that together you’ll be able to grow share more in the future than you can do on your own right now and why?

Yusuf Mehdi: We are able to combine the best of the technology and expertise from both companies into one platform. As a result of this agreement, we have the license to take the technology from Yahoo search and integrate with it the best of what we have at Microsoft. By combining together in the scale, we’re able to get a larger amount of data and signals, if you will, that instruct and improve the algorithms that drive relevancy. By then having a more compelling offering with advertisers, we think that will also then lead to better engagement, better data, and information. ... Across a number of reasons, scale, technology, people expertise and data, we think we’re going to build a much more compelling offering for everyone in the industry—consumers, advertisers and publishers.

Hilary Schneider: The abilityto serve the most valuable advertisers with a unified sales force makes us easier to use. That translates into efficiency and effectiveness for them and we think that will capture more share from a net spend perspective.

Staci D. Kramer: How does this change the field for companies like AOL, whose deal with Google (NSDQ: GOOG) expires at the end of 2010, for MySpace, for others with major search deals? How does it change the dynamics?

Yusuf Mehdi: Obviously, they’re the ones who’d have to speak to that directly. I think one of the value propositions of this deal in general is that we’re creating an incredible #2 player in the industry for search across paid search platform and algorithmic, and by having a more viable competitor, we believe that will increase competition for publishers like the ones you named in terms of winning their business over to our platform or the alternative platform.

By Staci D. Kramer

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