Yahoo Japan's Google Deal Godzillas Microsoft

Yahoo Japan has apparently agreed to use Google for its back-end search and advertising system, according to online reports. For Microsoft, the news must be something of an unexpected blow, considering that its 10-year search-and-advertising agreement with Yahoo is currently in the midst of implementation; although Yahoo's U.S. corporate mother ship only owns about 35 percent of Yahoo Japan (says Bloomberg), you'd think that the sheer magnitude of the agreement would be enough to sway even the most recalcitrant franchise into preemptively jumping onboard the Bing wagon, right? Right?

Wrong, I guess.

"At the present time, we feel there are quite a few areas where Microsoft is not yet ready," Yahoo Japan Chief Executive Masahiro Inoue told the media during a news conference in Tokyo, according to The New York Times. "Google is one step ahead in Japanese-language services."

For its part, Microsoft seems furious.

"This agreement is even more anti-competitive than Google's deal with Yahoo in the United States and Canada that the Department of Justice found to be illegal," Brad Smith, Microsoft's general counsel, said in a statement currently drifting around the Web. "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."

Under the terms of the search-and-advertising agreement, Bing will power back-end search for Yahoo's online properties, while Yahoo takes over worldwide sales force duties for both companies' search advertisers. Microsoft's AdCenter platform will power search advertising for Yahoo, as well. Both the U.S. Department of Justice and the European Commission cleared the agreement in February.

Microsoft likely hopes that the deal will result in Yahoo's search-engine market share porting over to Bing with relatively little attrition. But this brouhaha with Yahoo Japan suggests two things: a.) Yahoo's global presence is too fractured, with too many other players possibly owning their own little pieces, to make such a transition uniform, and b.) Microsoft may face a very steep uphill battle as it tries to increase Bing's market presence into new international markets.

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