Microsoft and Yahoo! finally announce search deal

Microsoft (MSFT) has finally managed to bring Yahoo! (YHOO) into an Internet search partnership. In a press release, Yahoo! says that Microsoft will acquire an exclusive 10 year license to its core search technologies and Microsoft will have the ability to integrate Yahoo! search technologies into its existing Web search platforms (This post was updated at 8:45 am after Yahoo! and Microsoft issued a press release confirming the deal).

The deal would give Microsoft roughly 28 percent of the total search engine market. In theory, this added scale will make it easier to do battle with Google (GOOG), the still growing behemoth of the space. Apparently, Advertising Age or the AllThingsD blog at The Wall Street Journal originally broke the story.
So what are the details? Here's a solid overview from PaidContent. Microsoft's Bing search engine will replace Yahoo's own search engine throughout the Yahoo online empire. Yahoo will continue to sell search ads for Bing. Microsoft will not pay any money up front for the deal but has likely made revenue guarantees to Yahoo in the millions of dollars. The new search engine tie-up entails that Microsoft's AdCenter advertising platform be used and Yahoo's Panama platform be tossed overboard.

Left out so far are any cooperative arrangements on display advertising, a market where Yahoo has far more purchase than Microsoft and one that Google has not dominated to date. This is interesting because the possibility for market consolidation is perhaps greater in display ads than in search ads.

The term duration of the deal has not been discussed but one would imagine its a long-term deal. Besides, once Yahoo unplugs its search engine and disbands its engineering team, reconstituting its search property down the road will become expensive and painful. Throwing search to Microsoft will likely save Yahoo hundreds of millions of dollars per year in server and bandwidth costs, R&D and other functions.

Yahoo CEO Bartz has been actively looking for ways to slice her burn rate. This deal would appear to fit that bill nicely and let Yahoo keep a nice chunk of change from search ad sales. On the down side, Microsoft will now own all the data collected from searchers -- data that could prove invaluable in building and planning for the next generation of internet services. Not that Bartz really had much of a choice -- Yahoo was quickly fading in the face of Google's onslaught and the arrival of Bing, which had a very solid opening, sealed the deal.

Alex Salkever is a senior writer at AOL Daily Finance covering tech and green tech topics.

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