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Last week, Amazon announced its contract with Google expired and that it had switched to Microsoft for its search services. The new agreement with Microsoft covers three significant Amazon properties, including Amazon, Alexa and A9. While none of these properites is a high-volume search vehicle when compared to Google, MSN, or Yahoo, this is clearly a big victory for Microsoft’s Live and significant loss for Google.

As we discussed recently in the note about Google’s search algorithm, Google’s business is predicated on maintaining the highest level of demand of for its sponsored listings. A slight shift in the demand for those sponsored listings can have a significant impact on the premium advertisers are willing to pay for the same sponsored listing they can purchase elsewhere. Said differently, the only reason for an advertiser to increase their bidding in Google is to capture a higher percentage of the available volume.

Truth be told, most advertisers, except for the smallest of businesses, alredy use Yahoo in addition to Google. The fact that Google maintains the greatest number of advertisers, i.e., participants in the bidding process, is the direct source for that premium.

So, as search volume moves to Live and MSN’s AdCenter, smaller independent advertisers will find an increasing motivation to add AdCenter to their marketing arsenal. This is not to say that there will be an exodus from Google. But it should be considered that small businesses — a significant segment of the PPC market — do have limited budgets and may find it prudent to lower their bidding in AdWords. This shift over time could wear on Google’s margins and growth rate.