Microsoft, Yahoo finally do deal on search

Microsoft and Yahoo have finally reached a search agreement, in a deal which will see Microsoft power Yahoo search while Yahoo will manage the ad sales.

The companies said they could implement the arrangement within 24 months if the deal gains regulatory approval.

By that time, Yahoo expects it to bolster operating profit by €357 million (US$500 million), reduce its capex by €143 million and provide an annual cash flow of €196  million.

In a veiled stab at Google, Microsoft said the deal would “combine Yahoo and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70% of all search.” GigaOm estimates that Yahoo has 19.6% of the search market, while Microsoft has 8.4%.

The 10-year agreement will see Yahoo's search sites powered by Microsoft's Bing algorithmic search technology.

While Yahoo will become the exclusive sales portal for advertising on both companies' search sites, Microsoft's AdCenter will set the search price, Microsoft said.  

The companies will have a revenue sharing agreement for all traffic generated on Yahoo's network of sites. Microsoft will also guarantee Yahoo 88% of the search revenue from its own sites, and guarantee a minimum revenue per search for 18 months after implementation, on a country-by-country basis.

“This agreement comes with boatloads of value for Yahoo, our users, and the industry,” Yahoo CEO Carol Bartz said.

Microsoft and Yahoo would continue to compete in web properties and products, email, instant messaging and display advertising, the companies said.

Ovum research fellow David Mitchell said the deal was “long overdue” and in its specifics contained few surprises.

But he noted that the two companies would have to work hard to make it work in Asia, where “very strong local competitors that continue to be more popular than Google, Microsoft or Yahoo.”

Baidu in China and Nayer in South Korea were the most popular in those markets, he said.

“Given that the Internet population is growing fastest in Asia, both Google and the combined Yahoo-Microsoft proposition will need to work very hard to make inroads into this highly lucrative market.”

The companies have set up a website aiming to give consumers more information about the merger.