It’s Finally Official, Microsoft & Yahoo Make A Deal, Yahoo Gives Up On Search

As expected, Microsoft and Yahoo have finally struck a deal, one that with regulatory approval, they hope will be in place by early 2010. Microsoft has issued a press release and created a minisite about the deal. A press conference is happening later today (which we’ll live blog), and we’ll have continuing coverage. The details so far:

  • 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 [Note from Danny Sullivan: Exclusive suggests Yahoo itself won't be able to use the technology or develop it, which means after 10 years, what's left probably isn't that useful]
  • 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. [Note from Danny: AOL used similar words about how it would somehow make Google-powered search "better" despite not owning the technology. People still went to Google].
  • 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% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
    • 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. [Note from Danny: What's the amount? And this is far shorter than I'd have expected].
  • 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.
  • 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.

A live webcast of the conference call can be accessed through the companies’ Investor Relations websites at http://yhoo.client.shareholder.com/results.cfm and http://www.microsoft.com/msft. In addition, an archive of the webcast can be accessed through the same links.

Danny is now live blogging the conference call.

See our related coverage:

Photo by Yahoo.

Related Topics: Channel: SEM | Microsoft & Yahoo Search Deal | Microsoft: Bing Ads | Microsoft: Business Issues | Microsoft: Partnerships | Top News | Yahoo: Business Issues | Yahoo: Partnerships | Yahoo: Search | Yahoo: Search Ads

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About The Author: is Search Engine Land's News Editor and owns RustyBrick, a NY based web consulting firm. He also runs Search Engine Roundtable, a popular search blog on very advanced SEM topics. Barry's personal blog is named Cartoon Barry and he can be followed on Twitter here. For more background information on Barry, see his full bio over here.

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  • http://www.rimmkaufman.com George Michie

    From the PPC perspective this is probably good news. Combining the Bing platform with the Yahoo service reps takes the best offerings from each company. Aggregating will also give us more data to model which should help us improve performance for both networks.

  • http://www.billhartzer.com/ bhartzer

    From an SEO (search engine optimization) perspective, it looks to me like you no longer will need to “optimize for Yahoo!”, since it appears that the Microsoft search engine Bing will power the Yahoo! Organic Search Results.

  • john7

    It should not be allowed to happen….
    A market controlled by basically 3 companies, now becomes 2….
    There is nothing in this for the consumer.

    I found another search engine
    Gezzmo; i hope the little companies survive and lead innovation.

  • cl0id

    How on earth does reducing 3 competitors to 2 enhance consumer choice and increase innovation?

    The reason Google are 1 in search and advertising is they simply have a better product and consumers have made their choice. The fact Microsoft and Yahoo have been incapable of keeping up is tough.

    Microsoft have shown little innovation in search and have been incapable of increasing their search share on there own.

    If I were a Yahoo investor, I’d be livid about this proposed deal.

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