If Bing Is In, Is Yahoo’s BOSS Out?

If Yahoo finally pulls the trigger on the on again, off again, mega-search deal with Microsoft, what will happen to the enormous investments it’s made in its search infrastructure?

The partnership reportedly under discussion would involve Microsoft (NASDAQ: MSFT) taking over Yahoo’s search business and sharing ad revenue. The deal could also involve some kind of partnership in Internet display advertising, where Yahoo (NASDAQ: YHOO) is an established leader.

A Yahoo spokesman told InternetNews.com that the company would have no comment in line with its standard practice of not commenting on “rumors and speculation.”

Yahoo has said it will continue to research and innovate in search even if it does a deal with Microsoft, according to IDC analyst Karsten Weide.

“They’ve said they will still work on making search better, so they have the option of one day taking it back in-house, but I don’t really buy that,” Weide told InternetNews.com. “Once the daily pressure is gone to be the best you can, there is no way you can be as good.”

Weide has been a big supporter of Yahoo CEO Carol Bartz since her appointment late last year, but he’s consistently opined that a search deal with Microsoft would not be good for Yahoo.

“My opinion hasn’t changed. I still think it would be a strategic mistake to outsource search to Microsoft,” he said.

He concedes there are significant upsides to a deal, including Microsoft’s payment and Yahoo being able to avoid huge infrastructure costs for datacenters and telecommunications.

“They would save big on overhead costs, no doubt about it,” Weide said.

Yahoo has about 20 percent of the search market, while Microsoft is around half that, according to industry estimates that give Google most of the remaining 70 percent.

A year ago, Yahoo launched an ambitious Build Your Own Search Service (BOSS) program that essentially makes its search infrastructure available to third parties. Search engine companies, such as Hakia and OneRiot use BOSS to add Yahoo’s vast Web search reach to its own.

[cob:Special_Report]At a media briefing in May, Yahoo said the combined queries from BOSS partner Web sites were on track to reach 1 billion monthly queries that month, or about three times as many as it had six months earlier and almost as many as Microsoft.

Weide thinks Microsoft might be reluctant to push for BOSS to go away because it drives a lot of traffic.

“But Yahoo has embraced opening up its platform and Microsoft hasn’t, so it’s hard to say,” he said.

Hakia, meanwhile, said it wasn’t dependent on BOSS, but would be disappointed if the program went away.

“We are not concerned about the termination of the BOSS program. Yahoo search feed is one of the feeds we use to enrich Hakia’s QDEXed content … Hakia has a different way of analyzing and storing Web content, which is called QDEXing (Query Detection and Extraction system),” Hakia President Melek Pulatkonak said in an e-mail to InternetNews.com.

“On the other hand, we believe that Yahoo! Search BOSS is an opportunity for innovators to focus on what they do the best,” Pulatkonak said. “We think it is one of the best initiatives launched in the search market in recent years. It would be sad to see it terminated.”

Scaling search

Any transition to Microsoft’s Bing search would take time.

For one thing, Microsoft would have to scale its datacenter infrastructure to accommodate the significant increase in traffic. Weide thinks both companies would want to keep their separate identities, so Yahoo would maintain the same branded search site even if it was powered by Microsoft Bing behind the scenes.

Bartz has made it clear Yahoo would demand a pretty penny for its search business, which is reportedly why negotiations with Microsoft have been so thorny. At last month’s shareholders meetings, Bartz emphasized Yahoo’s growth potential and said its problems had more to do with execution.

“We already have our vision — we know what we’re doing,” Bartz said. “If we could double our audience, advertisers would flock to us. It’s about growth. The vision is there. We have an execution problem.”

IDC’s Weide thinks Yahoo is considering the search deal for the revenue and so it can focus on its home page being a major media content site.

“They want to continue to get more third-party content distributed under the Yahoo brand and sell ads against it,” he said.

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