MS Yahoo Search Deal

Microsoft and Yahoo today at last announced a partnership between the two companies for both ads and search. The 10-year deal will see Microsoft's Bing search engine replace Yahoo's own in most areas and will give the Windows developer a license to Yahoo's search technology to use for itself. In return, Yahoo will sell premium ads for both companies and will collect revenue from Microsoft for traffic sent its way during the first five years. Microsoft also vows to guarantee Yahoo's revenue for the first year and a half the new arrangements take effect in a given country. It should improve Yahoo's cash flow by about $275 million per year.

Both partners are adamant that they'll each have their own separate display ads and that one won't have control over the design of the other's websites. They also promise to keep data private and avoid exchanging it when possible.

Government regulators will look at the deal to prevent possible anti-competitive behavior but are expected by Microsoft and Yahoo to approve the deal by early 2010.

The agreement is pitched as improving the scale for both advertisers and for search but is openly admitted by the companies as ultimately meant to fight Google, which owns about 70 percent of search traffic in the US. Microsoft makes clear that it's the primary architect of the deal and that its ultimate goal is to "unleash competition" by creating a more significant competitor.

Last year, Microsoft had attempted a hostile takeover of Yahoo after months of unsuccessful offers. It was denied both after Yahoo insisted it was being undervalued and made a number of "poison pill" moves that rendered a deal difficult, including an abortive ad deal with Google and extremely rewarding severance packages that would have encouraged mass defections from Yahoo if Microsoft were to buy the firm. The attempt and today's deal are commonly known to stem from Microsoft chief Steve Ballmer's personal focus on undermining Google, which included mirroring the company's purchase of ad firm DoubleClick by its own purchase of aQuantive, the creation of Bing and building the now-defunct YouTube clone Soapbox.

Individually, Microsoft and Yahoo have struggled to gain any significant market share in ads or search in recent years. Bing has only been available for over one month and, while typically considered better than the previous Windows Live Search, has made relatively little progress of its own.

By Electronista Staff

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