Since that article, the much-hyped Microsoft-Yahoo! deal has fallen through (most probably for good now) and Yahoo! have signed an $800 million non-exclusive search advertising deal with Google that will see Google ads appearing in Yahoo!’s search results.

This deal basically means that Microsoft is really the only player left who can seriously have a tilt at Google. All the other players are either too small to be a genuine threat or have some vested interest in Google.

Yahoo! is now one of the latter. The problem that Yahoo! has is that by signing this deal, they have effectively conceded the search advertising war to Google, who maintain a massive market share of around 80%.

However, it’s important to note that this is not the first time that Yahoo! have outsourced to Google. Google supplied Yahoo!’s search results from 2000 to 2004 before Yahoo! engineered their own search engine. Microsoft’s MSN search was likewise outsourced for a number of years to LookSmart, Inktomi and AltaVista before they too decided to create their own engine in late 2004.

So while most consumers believe that Yahoo and MSN have been in the search game for years, and are regarded as the two ‘other players’ in the ‘Big 3,’ both have really only been producing their own search results for about four years. And now that Yahoo have gone back to Google for search engine advertising, it raises questions about whether or not even Yahoo! think they can match it with Google’s AdWords program.

Which brings us back to Microsoft as the only player who has not got some interest in Google’s success. There are a couple of signs that suggest Microsoft may be planning an assault on the Google fortress. The first is the breakaway of the MSN search engine to the Live search engine which operates on a cleaner search-oriented feel (much like Google’s) as opposed to the web portal style of MSN and Yahoo!. This move has allowed Microsoft to frame its Live search as a separate entity that is focused on search, something that Google used very early on to gain credibility.

The announcement of Microsoft’s plans to take on the realm of display advertising is another indication that Microsoft is mobilising its forces. Microsoft AdCenter, while currently no match for the AdWords juggernaut, is in a prime position to receive a makeover and move rapidly into the display advertising field.

However, if Microsoft plan to seriously take on Google they need to move quickly as Google’s acquisitions of DoubleClick, and to a lesser extent YouTube, suggest that Google is keen to move in on this new market as well.

So, whilst there is no doubt that Google is by far and away the leader in terms of market share for both search queries and advertising dollars, there are signs emerging that suggest the Microsoft giant is not ready to lose the search war just yet, although they have to be ready for a long battle if they want to pinch the crown.

Round Two – Google Knockout… but is there movement on the canvas?

The agreement, which still has to be approved by anti-trust authorities, is an $800 Million (US) deal which will see Google’s paid advertisements appear on Yahoo’s search results.

Assuming the deal is approved, and I have the impression that it will as both AOL and Ask.com are on similar arrangements with Google, then this will mean that advertisers who are signed up with the Google AdWords program will be able to get their ads to display on Yahoo’s search pages.

This begs the question, if advertisers are able to sign up to the AdWords program and control the placement of their ads in Google, Yahoo, Ask.com & AOL, why would advertisers then sign up for Yahoo Search Marketing, which is limited to just Yahoo searches?

The answer is simple… they wouldn’t.

When you throw in the fact that Yahoo Search Marketing requires a $30 deposit and pre-pay billing, Google’s AdWords becomes even more of a clear option. To make the contest even more one-sided, Google offer a whole raft of extras to assist you with your campaigns including Google Analytics, WebMaster Tools and the new Google AdPlanner.

Yahoo claim that their Search Marketing program will continue to operate in tandem to Google’s ad placements but how long will Yahoo’s users put up with double the amount of ads? My guess is that Yahoo’s Search Marketing program will simply be phased out over 12 months or so. The other more cynical option is that Yahoo will simply drop its Search Marketing program as soon as the deal is approved, and are only keeping the program running to help get it rubber stamped.

So why did Yahoo! make this deal? Quite simply… money.

Google’s share of online advertising revenue is around 80% (depending on who you believe) but Yahoo’s is only around 5%. Despite Yahoo’s best efforts they have failed miserably at stealing any of Google’s market share. In fact, they are actually losing ground.

This left Yahoo with two options; makeover their own Search Marketing program to be better than Google’s AdWords, or take the AOL and Ask.com path and simply outsource to Google. They chose the latter and one can hardly blame them. This new deal guarantees Yahoo! a stream of online advertising income but tightens Google’s grasp on the search marketing market.

It’s no wonder that this kind of deal has drawn interest from the anti-trust authorities but if it is approved (as I suspect it will) then there is strong evidence that this is the end for Yahoo’s Search Marketing program. Once again it looks as though it’s going to be Google v Microsoft.

But why then is everyone so sceptical about Microsoft’s prospects? Why is the Microsoft juggernaut all of a sudden vulnerable to this relative rookie company with big dreams? The answer is simple; Google do search better and they have the market in the palm of their hand.

Microsoft’s MSN/Live search and Yahoo’s search are just not making inroads against Google’s tried and tested simple approach. Google has a no-fuss approach to search. Their homepage is simple, results are clearly displayed and most users have faith in the Google algorithm’s ability to deliver relevant search results. Live and Yahoo! have not worked this out or refuse to blatantly copy Google’s premise.

The name Microsoft once struck fear into the hearts of all other digital companies, because it seemed that no matter how well you did something, Microsoft could throw millions at it and take your market.

But Google has changed all that. Microsoft have been trying for years now to replicate Google’s success online, but according to BRW Magazine, have only managed around 5% of US search revenue market share, compared to Google’s whopping 77%. Google has humbled the once un-toppable giant.

The secret to Google’s success is that, out of all the big search engines, they have the most conspicuous ads. Live and Yahoo! both have ads cluttering their homepages whereas Google only display ads in search results and their AdWords quality score algorithm keeps their ads fairly relevant as well. For this reason, a search results page in Google does not “feel” like an advertising billboard, which can be the case in other search engines.

So that brings us to now, where Microsoft is once again claiming that they are ready to take the mantle as the net’s premier search engine. Microsoft are currently working on capturing the display ad market, with development teams working overtime on technology for video and banner ads that display more relevant ads based on a user’s browsing patterns.

Of course Google are not going to sit back and wait for Microsoft to gain ground on them, and their recent acquisitions of DoubleClick and Youtube suggest they are already going on the offensive.

So who’s going to win? Microsoft or Google? From what I’m seing the answer is Google. Google have the market cornered and are not going to give it up without a fight.

One of the reasons I believe that Google will win (this round) is that they have quite remarkably managed to dodge the ‘big bad company’ tag. It is very common for large corporations to become disliked in the court of public opinion because they are greedy or ‘out to get us.’ It seems that no matter how big Google get, they are still liked by the public. This can probably be traced back to the way Google manages its staff, who work in more of a resort than an office. In the search engine wars, Google are the good guys whilst Microsoft are the baddies.

Microsoft will undoubtedly keep trying, they always do. Search engine advertising is too big a market for Microsoft to give in, but if this new display ad platform is once again outperformed by Google, they may have to go crawling back to Yahoo. Microsoft have already hinted that they may revisit the idea by putting the merger decision to a shareholder vote, indicating that even inside their own ranks they have doubts over their own ability to beat Google.

My gut feeling says that Microsoft and Yahoo will be together sooner rather than later. If and when this happens it is critical that they do not try and copy Google, but rather come up with a new kind of search experience, that delivers the most relevant search results (including ads) and offers more for Internet users, but I won’t be holding my breath.

Round One – Google Knockout…