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Yahoo and Microsoft Announce Search Deal
Wednesday, July 29, 2009
Well Carol Bartz, you fought the good fight. I guess that this deal was inevitable, but Microsoft and Yahoo have announced a deal as communicated by the official press release:

Yahoo! and Microsoft announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.

Key Terms of the Deal

The key terms of the agreement are as follows:

  • The term of the agreement is 10 years;
  • Microsoft will acquire an exclusive 10 year license to Yahoo!'s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing Web search platforms;
  • Microsoft's Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology;
  • Yahoo! will become the exclusive worldwide relationship sales force for both companies' premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft's AdCenter platform, and prices for all search ads will continue to be set by AdCenter's automated auction process;
  • Each company will maintain its own separate display advertising business and sales force;
  • Yahoo! will innovate and "own" the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology;
  • Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!'s network of both owned and operated (O&O) and affiliate sites;
    • Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88 percent of search revenue generated on Yahoo!'s O&O sites during the first five years of the agreement; and
    • Yahoo! will continue to syndicate its existing search affiliate partnerships.
  • Microsoft will guarantee Yahoo!'s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country;
  • At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million; and
  • The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.

The agreement does not cover each company's Web properties and products, email, instant messaging, display advertising, or any other aspect of the companies' businesses. In those areas, the companies will continue to compete vigorously.

Carol Bartz posted what the deal means for you on the Yodel blog:

  • Better search: You’ll still find search boxes all across Yahoo!, but this deal will make the difference between a great Yahoo! search experience and an awesome one. Some of the biggest brains in the business work on Yahoo! Search, and they will continue to innovate to create a better search experience on Yahoo!. As a result of the deal, Microsoft, which has great technologists and deep pockets,will have the scale to bring users faster, more useful and more personally relevant search.

  • Better everything else: With Microsoft powering Yahoo! Search, we’ll be able to focus on the things we do best -– being the center of people’s lives online with properties like our homepage, mail, finance, news, sports, entertainment, mobile, etc. Sure, we’re the world’s largest online media company and your loyalty has made that possible. But we’re not satisfied – we still want you to say “wow” a lot more often. And that’s what makes this deal especially exciting.

  • Better competition: Competition equals innovation. But with one player dominating 70% of search, that field has been pretty lopsided. This transaction will create a healthy competitor that’ll keep everyone on their toes.
No word on Google's response as of yet. More details to come...


posted by Jody @ Wednesday, July 29, 2009  
  • At 11:23 AM, Blogger Rob said…

    I think in terms of search this is a win for Microsoft - they'll get access to data volumes they've never had before which they should be able to use to improve their search long term and perhaps even begin making gains on G.

    It's also a win for Yahoo because it will free up resources for Yahoo to focus on other areas - I think online media in general is still a big focus for them so by removing search from their resume they can build up on other areas where they've been lacking.

    On the other hand if Bing fails as miserably as its predecessors both Yahoo and Microsoft can kiss their search aspirations goodbye and hand the keys to the kingdom to Google for good.

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