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Microsoft finally persuaded Yahoo to surrender control of the Internet’s second most popular search engine and join it in a daunting battle — taking on the overwhelming dominance of Google in the online advertising market.

A 10-year deal announced Wednesday gives Microsoft its best shot yet to show its new search technology, Bing, is as good as or better than Google’s. Microsoft also hopes to use Yahoo to divert sales from Google, which generates more than $20 billion a year from ads.

By spending less on its own search technology, Yahoo expects to boost its annual operating profit by about $500 million — but not until 2012, when the two companies expect to have all the pieces of a complex technological puzzle in place.

“I am very enthusiastic,” Ballmer said in an interview. “This is what I have basically been saying for the past 18 months: The world will be better served for consumers, advertisers and publishers, and there will be more competition for Google, if we can somehow figure out how to get Microsoft and Yahoo together in search.”

Like Yahoo, Microsoft has invested billions in search technology during the past decade. Yet it remained a distant third in market share while its online losses piled up. Microsoft is counting on Bing, unveiled last month, to turn things around. Bing has been getting mostly positive reviews and picking up slightly more traffic with the help of a $100 million marketing campaign. Analysts believe the successful debut pushed Microsoft to reopen negotiations so it could expose its search engine improvements to a wider audience.

While Microsoft and Yahoo await government approval of their partnership, there is no doubt Google will try to increase its lead by upgrading its own search engine, said Danny Sullivan, editor of the online newsletter SearchEngineLand. Already, Google is going after Microsoft’s bread-and-butter business of software for personal computers. It’s working on a free operating system for inexpensive PCs, a move that could threaten Microsoft’s Windows.

The Microsoft deal with Yahoo will allow the both to have about 30% of the world’s total search market share (according to some reports - i.e. ComScore). It still is a far cry from 65% held by Google - but I think that that 30% might just increase. It will also change the dynamics of the search marketplace globally - and also in Asia. With this deal, Google’s dominance is going to be a little less - well - dominant, and threatened.

Source: Yahoo Finance

An update on how some of the big digital players are doing in Asia:

Searches on Yahoo! sites grew 13% year-over-year in January in Japan. Google sites, including YouTube grew just 5%, however the comScore data does not count mobile searches, which is big in Japan. So who said that Yahoo! was down and out? Yahoo! may find themselves behind the ball game in N.America and Europe, but in APAC, it’s an entirely different ball game. Similar to Japan, Yahoo! finds themselves as the top search engine in Hong Kong and Taiwan. We’ve also seen local players take strong footholds of being number 1. - for example, Baidu in China and Naver in South Korea.

Talking about China - in this massively growing internet market, international giants like Google and Facebook are having trouble making gains with the 300 million Chinese online users.  While these companies struggle to conquer market share in China and to create viable business models everywhere, their Chinese clones have built lucrative cash machines literally earning billions of dollars a year relying more on micropayments. Unfortunately, adopting Chinese methods may not help American social networks due both to cultural differences in Chinese user behavior and industry practices. Social networking has increased rapidly in the last year across the world. China is a case in point. China’s leading SNS are local players that are driven by users engaged heavily in applications, which is very different from the US. Whereby branded pages work well in one market, they may not have as great an impact in another.

So understanding cultural norms and market differences will directly affect how advertisers engage with the audience. Marketers should review the best mix of top and secondary sites and search engines to fully intercept the audience.

Source: UM newsletter May