martinibuster - 5:19 am on Oct 30, 2009 (gmt 0)

...the revenue that Microsoft gains from operating Ask and serving ads...

The situation is worse for Microsoft than it is for Yahoo. Microsoft does not have the advertiser inventory to supply ASK with buyers for PPC ads. Microsoft cannot even supply itself with advertisers in order to monetize Bing. How would they supply advertisers to ASK if Microsoft doesn't have enough advertisers to monetize Bing? Microsoft's search revenue is actually declining. Microsoft cannot derive any meaningful amount of revenue from ASK because they do not have the supply of advertisers to feed the demand.

Here is what CNN Money reported [money.cnn.com] about Microsoft's poor position:

The company still failed to turn a profit in its online services business though. That division, which includes MSN, lost $480 million in the quarter. Sales in the division were down 6% from the same quarter a year earlier. The company said search advertising revenue continued to decline, but the industry is showing signs of stabilization.

If that doesn't make sense, then here is an analogy. Imagine that advertisers are lemons and the search engines are lemonade stands. The more lemons you have, the more lemonade you can sell.

Now imagine Microsoft has enough lemons to make one pitcher of lemonade, Yahoo has enough lemonade to make two pitchers of lemonade, and Google has enough lemonade to make one hundred pitchers of lemonade.

Now here comes ASK.com. ASK.com has zero lemons, no advertiser base at all. ASK.com's lemons were being supplied by Google.com. Google has an oversupply of lemons, enough capacity to supply ASK.com with $450 million dollars of lemonade per year. Until the agreement with IAC expires in three years.

Microsoft has enough lemons to make one pitcher of lemonade. If Microsoft buys Ask.com's lemonade stand, how many more pitchers of lemonade can Microsoft sell at ASK.com's lemonade stand?

This is what I mean when I say that Microsoft/Yahoo will have to magically cultivate thousands of new advertisers overnight before they will be able to monetize ASK.com with ads. If there are no advertisers bidding for PPC then there is no revenue.