Microsoft (MSFT): Buying Search Engine Share Overseas

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Everyone who looks at the news knows that Microsoft (MSFT) has a search engine market share problem in the US. By most measures, it has about 10% of the pie. If it had been able to buy Yahoo! (YHOO), that number might have gone up to 30%.

Microsoft may not be able to dominate search in the US, but it could in some large markets overseas.

According to the FT, "Google has made little headway against entrenched local search companies in a handful of countries around the world." This search giant has relied on moving its own technology and brand into all of these markets, which may be a mistake.

Yandex gets 46% of search queries in Russia. Seznam controls 63% of Czech searches. By some measures, Baidu (BIDU) has as much as two-thirds of the search market in China. Yahoo! Japan has half of the market in that country.

Microsoft was willing to pay well in excess of $40 billion for Yahoo!, to become the No. 2 search operation in the US.

Baidu, which is public, has a market valuation of $9 billion. Even if Microsoft was willing to pay twice that for a controlling interest, it would hold the pole position in the world’s most populated market which just passed the US for first place in total internet users. The prices that Microsoft would have to pay for Yandex and Seznam would probably be below Baidu’s.

Local governments may have a problem with Microsoft owning their search companies, but that does not mean that these foreign firms could not be controlled to a large extent by local management. That is more a matter of a contract than ownership.

Microsoft’s interest in search may be branding, but its primary concern should be reach. If Microsoft can put its search results along side of those of its local partners and command the text advertising inventory across a large number of countries where its partners are the leaders, it would have developed a good flanking maneuver against Google.

What is clear is that search is a local and not a global phenomenon. If Microsoft wants a dominant position, it will have to attack the problem country by country.

Douglas A. McIntyre