First to pounce on the SEC 8-K filing by Yahoo was PaidContent, which provides an extensive bulleted list of many of the deal terms not revealed last week during the frenzy of conference calls and articles that followed the official announcement of the Microsoft-Yahoo search deal. CNET also writes about selected aspects of the deal contained in the filing, specifically an “escape clause” (termination) for Yahoo (see below). And the AP has a short piece on how the deal terms require Microsoft to hire at least 400 Yahoo employees.

Here are some verbatim excerpts from the SEC filing:

Negotiation and Execution of the Definitive Agreements

Pursuant to the terms of the Letter Agreement, the parties will negotiate and execute the Definitive Agreements as soon as practicable but in any event by October 27, 2009 (the “Negotiation Period”). If the Definitive Agreements are not executed during the Negotiation Period, the parties will submit any disputes regarding the final terms of the Definitive Agreements to an arbitration panel.

Conditions to Commencement and Termination Prior to Commencement

Prior to the Commencement Date, the Letter Agreement and Definitive Agreements may be terminated only by (a) mutual consent, (b) if a breach renders a condition incapable of being satisfied by the Termination Date (as defined below), or (c) if the conditions to commencement have not been satisfied by July 29, 2010 (the “Termination Date”); provided that Yahoo!, in its sole discretion, has the right to extend the Termination Date by six (6) months if the required antitrust approvals have not yet been obtained.

Search and Advertising Services and Sales Agreement

For a period of ten (10) years beginning on the Commencement Date (the “Term”), Microsoft will be Yahoo!’s exclusive technology provider for algorithmic and paid search services and Microsoft will provide contextual advertising to Yahoo! on a non-exclusive basis. Yahoo! will be the exclusive worldwide relationship sales force for Yahoo!’s and Microsoft’s premium search advertisers.

The services provided by Microsoft under the Search Agreement will be provided on all web sites, applications and other online digital properties owned or operated by or on behalf of (a) Yahoo!, Yahoo! subsidiaries and Yahoo! joint venture relationships, as well as on software applications developed or distributed by Yahoo! or Yahoo! subsidiaries that provide access to or enable algorithmic search services or paid search services (“Yahoo! Properties”) and (b) Yahoo! Syndication Partners (as defined below), as well as software applications developed or distributed by Yahoo!’s Syndication Partners that provide access to or enable algorithmic search services or paid search services from Yahoo! (“Syndication Properties”). “Syndication Partner” means a third party with whom Yahoo! has contracted to provide algorithmic search services or paid search services.

Subject to certain specified restrictions, Yahoo! will have full flexibility with respect to the user experience, content and look and feel on all of its web pages, and will also be entitled to use the paid search services and algorithmic search services for non-internet search queries with minimal restriction . . .

Microsoft’s mapping services and mobile search services. Yahoo! may implement each of the mapping services and the mobile search services on a non-exclusive or an exclusive basis. Yahoo! also has the option to work with Microsoft to implement the services on other platforms. If Yahoo! elects to receive services for other platforms, it must receive such services on an exclusive basis.

Revenue Share Payments and Other Payments

During the first five years of the Term, Yahoo! will be entitled to receive 88% of the net revenues generated from Microsoft’s services on Yahoo! Properties (the “Revenue Share Rate”). Yahoo! will also be entitled to receive its share (at the Revenue Share Rate) of the net revenues generated on Syndication Properties after the Syndication Partner’s share of net revenues is deducted. For new Syndication Properties during the Term, and for all Syndication Properties after the first five years of the Term, Yahoo! will receive its share (at the Revenue Share Rate) of the net revenues generated from Microsoft’s services on Syndication Properties after the Syndication Partner’s share of net revenues and certain Microsoft costs are deducted.

On the fifth anniversary of the Commencement Date, Microsoft will have the option to terminate Yahoo!’s sales exclusivity for premium search advertisers. If Microsoft exercises its option, the Revenue Share Rate will increase to 93% for the remainder of the Term, unless Yahoo! exercises its option to retain its sales exclusivity, in which case the Revenue Share Rate would be reduced to 83% for the remainder of the Term. If Microsoft does not exercise such option, the Revenue Share Rate will be 90% for the remainder of the Term.

Microsoft will also pay Yahoo! a payment of $50 million annually during the first three (3) years of the Search Agreement. Yahoo! may use these payments to partially cover transition and implementation costs not otherwise covered under the Search Agreement.

Termination Provisions

Yahoo! may terminate the Search Agreement if the trailing 12-month average of the RPS in the United States (the “U.S. RPS”) of Yahoo! and Microsoft’s combined queries falls below a specified percentage of Google Inc.’s (“Google”) estimated RPS measured on a comparable basis or if the combined Yahoo! and Microsoft query market share in the United States falls below a specified percentage; (d) on the fifth anniversary of the Search Agreement, and any time thereafter, Yahoo! has the right to terminate the Search Agreement if the trailing 12-month average of Yahoo!’s U.S. RPS is less than a specified percentage of Google’s estimated RPS; or (e) subject to exceptions, either party may terminate if a law, regulation or order would have a significant, adverse impact on a primary aspect of such party’s intended benefit of the Search Agreement.

Transition and Implementation Plan

Microsoft will hire not less than 400 Yahoo! employees (the “Transferred Employees”) and will offer the Transferred Employees market competitive compensation packages. In addition, Yahoo! and Microsoft will mutually agree on a retention plan to be paid for by Microsoft to assist in retaining the Transferred Employees and an additional 150 Yahoo! employees to be mutually agreed upon between Microsoft and Yahoo! to assist with providing the transition services.

The deal seems broader than the “web, image and video” search scope we heard before. Yahoo can terminate the deal if certain targets aren’t meet surrounding revenue per search, benchmarked to Google. At the five year mark the parties can change who runs “premium sales.” The rev share percentages change accordingly.

On a related note, there’s an opinion piece in the Wall Street Journal that argues these terms give Redmond a bigger win than Yahoo in Microsoft CEO Steve Ballmer’s “win-win” scenario but that, in the larger scheme of things, Google may have already won the game:

The deal is a clear win for Microsoft and a qualified win for Yahoo. The big question is whether it makes any difference in the only contest that really matters, which is the one with Google. The risk for both Microsoft and Yahoo is that the contest is already over. Second place won’t really matter, especially as the competition shifts to Microsoft’s home turf: operating systems.

Related coverage:

• It’s Finally Official, Microsoft & Yahoo Make A Deal, Yahoo Gives Up On Search
• Live Blogging The MSFT – YHOO Search Press Conference
• Microsoft-Yahoo Deals 2008 & 2009, Side-By-Side
• A Search Eulogy For Yahoo
• Micro-Hoo Details: Q&A With Mehdi & Schneider
• The Microsoft-Yahoo Search Deal, In Simple Terms

The deal is done. Microsoft has swallowed Yahoo search whole and we can all be put out of our long, lingering misery. Yahoo has given up on search and thrown in the towel. But, outside this industry and our incestuous little gossip circle, what does it really mean for average folks? Does it make a difference… really? When all is said and done, will the news amount to a hill of beans?

Well, in the long run, it’s probably a good thing for most of the players involved, including users. My original concern when rumors of Microhoo started to fly was the distraction that the integration of two very different and somewhat challenging cultures would become. I was afraid that the search user experience would get lost in the process. But the revenue share split does away with that concern, which is good for users. Yahoo can continue to be Yahoo, minus the “distraction” of search. Microsoft can get serious about search with a more viable economic engine to justify their investment. Basically, the deal gives Microsoft a whole lot more eyeballs for Bing, and that’s going to be beneficial for everyone.

But there are some other reasons why the search user could benefit from this deal:

A release of talent

There’s a whole bunch of PO’d, disenfranchised search engineers that have just had a frightening but potentially liberating view of the future: freed from the shackles of the rapidly sinking S.S. Yahoo, they might actually have a chance to do something meaningful in search.

I’ve had the opportunity to talk to various members of the Yahoo! search team over the last several years, under Semel, Yang and Bartz. The underlying current was always one of thinly veiled frustration. They deserved better. They were smart and, once upon a time, passionate about search. But for the past several years they were left hanging out there, blowing in the breeze. They yearned to do something meaningful. Now, with the ladder kicked out from underneath them, they have no alternative. Whoever hasn’t already jumped ship will be forced to find new, and hopefully, more rewarding homes.

Pushing the wolves back from the door

At the risk of sounding like a broken record, or, less anachronistically, a skipping MP3 file, search needs a major shot of innovation. The dysfunctional competitive environment that we’ve had for the last few years put all the major players in a position where innovation wasn’t encourage. Specifically:

Google. As the market leader with a major marketshare, almost completely dependent on the search advertising revenue stream, it’s hard to rock that boat too vigorously. Every minor change in the search UI could have a potentially negative impact on ad clickthroughs. The dynamics of the SERP are subtle and small changes can have big impacts on behavior. Given the obsessive focus on quarterly revenue numbers by Wall Street analysts, and the macro economic impact of the recession, this was not the time to boldly screw around with your golden egg-laying goose. Google always speaks a good game when it comes to hyping their efforts to innovate in search, but come on, how different is the Google SERP now from what it was 4 years ago? How innovative have they been with AdWords?

Microsoft. Microsoft was the one who was really in a position to innovate, but despite repeated commitments to search from everyone from Gates on down for the last several years, the company’s track record has been less than stellar, to be exceedingly kind. Bing is the first sign that they’re motivated to get it right, and that’s really more of a catch up move than anything. But at least they’re in the game now. I think the biggest problem was getting alignment in the gargantuan, lumbering Microsoft corporate structure. There was a lot of left hand/right hand lack of communication from Spanky and the gang in Redmond. It’s hard to innovate when you don’t even know who’s working on what.

With Bing, Microsoft showed they can execute. Now, let’s see if they can innovate.

Yahoo. You don’t innovate on the Titanic: you just try to survive. Nuff said.

What the Microsoft-Yahoo deal does is allow Microsoft’s search champions to better sell the need to innovate within the company. They have a bigger market share, can forecast significant revenue potential and make the case for investing in rapidly upping the search experience bar.  Microsoft can afford the fluctuations that are inevitable in ad revenue as they experiment with the UI, because search is a pretty small drop in the revenue bucket. And it’s certainly not that they don’t have the resources—all they need is the corporate prioritization and alignment. This deal may just do that for them.

A bigger ad inventory

Microsoft CEO Steve Ballmer sent the signal of the true value of a Yahoo partnership when he said last December:

“We’re fully prepared to compete without any partnership with Yahoo. We don’t need to act. Would it be advantageous for both of us to make a deal? Look, the fundamental basis for doing the search deal with Yahoo has to do with critical mass in the advertising marketplace. It doesn’t have to do with technology, or any of these other things, it really is a market phenomenon. Together we would have more advertisers… which means we’d have more relevant ads on our page. We’d have higher monetization levels possible in front of us because there would be more people bidding on more key words. Most importantly, Google would have perhaps a real credible competitor sooner.”

Success in search is all about relevancy. And if ads are going to be part of the results set, those ads better be as relevant as possible. The bigger the ad inventory, the more relevant they will be.  It’s a pretty simple equation.

And ad relevance is massively important to the user experience. At Enquiro we’ve done several studies that either directly or indirectly examined the importance of ad relevance to the overall search experience. The results are abundantly clear: the better the ads, the happier the user. The deal gives Microsoft a massive increase in advertiser inventory, and that’s perhaps the most important asset in the deal. It doesn’t matter that Yahoo gets 88% of the revenue. That’s short term thinking.  This is about running all those ads through the Microsoft platform, giving them the ability to control quality, targeting and relevance. The goal is gaining market share, and you need the highest quality ads possible to do that.

A stronger commitment from advertisers

No longer is an ad buy on Microsoft tossing them a bone out of guilt or a gesture of protest against a Google monopoly. With a combined market share pushing 30 points, that’s a serious slice of available eyeballs. Microsoft just became a mandatory buy. That allows them to build stronger relationships with advertisers, getting a more serious commitment in return. If Microsoft can pull the pieces of AdCenter together like they did with Bing, they’ll have a pretty powerful ad management platform. And Microsoft doesn’t suffer from the same passive-aggressive relationship with marketers that still lingers in the halls of the Googleplex. Advertisers look at Google with a mixture of resignation, fear and resentment. More than a few will willing fall into Microsoft’s embrace, now that there’s a justifiable reason to do so.

How does this help the user? Happy advertisers mean happy corporate execs up in Redmond, which means more of an appetite for innovation. Expect Microsoft to be more innovative in offering sponsored search formats. And happy advertisers also means more relevant ads (see my previous point).

More serious competition for Google

This deal sends a signal Google can’t ignore. They’re still in the search driver’s seat, but at least now they can see someone in their rearview mirror. If Microsoft can adopt a passion for innovation and push the envelope, Google will have to respond in kind. The search experience will evolve more rapidly, hopefully kicked out of the revenue obsessed stasis that it’s currently in. Stagnation benefits no one except the analysts and bean counters who insist that quarter over quarter performance is the only metric that matters. We’re way too early in the game to be that cautious and boring.

Will the Microsoft-Yahoo deal break the Google habit? No. In fact, Google will probably net a couple more percentage points out of this in the short term. But this lays the foundation of a more competitive market place, which can’t help but benefit users.

The deal puts Microsoft in the game. Now, let’s see what they do with the opportunity.

Conductor, a search marketing firm, has announced they have raised $10 million in funding from Matrix Partners and FirstMark Capital.

This is more good news from the search industry showing that venture capital companies are still investing in search marketing firms. Yesterday, we reported that Marin software raised $13 million and today, Conductor raised $10 million.

Here are statements from the release:

“We see persistent demand from large organizations to invest in SEO. However, lacking the tools to manage and measure that investment, many large organizations are effectively inactive in natural search and miss out on significant opportunities to grow their businesses,” said Nick Beim, a General Partner with Matrix Partners. “Conductor has demonstrated considerable success in improving the metrics and transparency of natural search.”

“Matrix and FirstMark bring important industry expertise, support and extensive networks that will enable Conductor to continue giving our customers insight into their natural search efforts,” said Seth Besmertnik, CEO of Conductor. “We look forward to continuously adding significant value to our customers by closing the loop for their natural search marketing efforts.”

paidContent.org reports Marin Software, a search marketing company, has raised an additional $13 million venture capital. The primary source of the money came from DAG Ventures, adding up to Marin raising a total of about $25 million in funding from sources such as Benchmark Capital, Amicus Capital and Focus Ventures.

Marin reportedly manages $300 million of online ad spend annually for clients such as ZipRealty and Microsoft’s Razorfish.

It is nice to see companies in the search field still able to raise money in these slow economic times.

Mozilla’s General Counsel, Harvey Anderson, announced the Russian builds of Firefox 3.1 will drop Google for Yandex. He explained that after months of research and surveys, Mozilla learned that their “Russian users really wanted direct access to the Yandex search.” So, in the next build of Firefox, the default search provider will be Yandex for Russian users.

The big loser in all of this might not be Google. PaidContent.org reports that Rambler, one of the big Russian portals, will be letting their CEO go after seeing their market share drop from 14.9 percent last year to just 6.4 percent. The CEO’s departure might be a signal that Google may not follow through on the Begun purchase, where Google would buy Rambler’s contextual ad service for $140 million.

In August of last year, Google renewed their deal with Mozilla to be the default search provider in Firefox. When Google came out with their browser, Chrome, it may have ruffled some feathers.

The rumors that Twitter will be buying Summize have now been confirmed. Twitter, the popular micro-blogging platform, has acquired Summize, a search engine that searches Twitter.

You can read all the news at Techmeme and also make sure to check out Danny’s write up on Summize named Summize Gains “Local” Twitter Search Option.

Sphere, software that connects contextually relevant content to your content, has been purchased by AOL. The Sphere Blog confirms the acquisition, and TechCrunch suggests the purchase price was at about $25 million. Sphere initially launched as a blog search engine but then adapted into a “related content engine,” with clients from the Wall Street Journal, Time, Reuters, and others.

In other AOL news, AOL Search has created a unique user interface for searching on AOL via your iPhone or iPod Touch. iPhone/Touch users just need to go to search.aol.com and to be presented with the new user interface. AOL’s Farhan Memon said “combining AJAX technology and the iPhone’s easy to use multi-touch surface, our designer Lisa Hoover and lead developer Alan Tai have created a user experience that allows the richness of the Web to be delivered on a phone.”

They posted a video demo of some of the features for iPhone users:

Yahoo, AOL Close In on Tie-Up Deal from the Wall Street Journal reports that Yahoo and AOL are close on finalizing a deal that would combine parts of both companies. The deal would bridge Timer Warner’s Internet operations with Yahoo by folding the AOL unit into Yahoo. In return, Time Warner would make a cash investment of about 20% of the combined entity, valuing AOL at about $10 billion.

Note From Danny: “In my talk today at SMX Sydney with Google vice president Marissa Mayer, she noted that the Yahoo deal was a way for Google to measure Yahoo’s traffic and how well it monetizes. This is important. This is not just a Yahoo test – it’s a test for Google. And from that test, Google will better understand how much it could make in a crucial revenue guarantee to a combined Yahoo-AOL, which might help the deal move along and keep Yahoo out of Microsoft’s hands.”

Here is Danny’s past article on why Yahoo May Partner With AOL To Escape Microsoft.

Yahoo would have this deal presented to Yahoo shareholders for their approval before commencing on it.

Yahoo has been very busy tonight, first partnering with Google in a search ad test and then Microsoft objecting strongly to such a partnership.

Here are some more details from the WSJ:

The possible Yahoo-AOL tie-up is part of a threefold plan by Yahoo to present shareholders with an alternative to Microsoft’s unsolicited offer. Yahoo would also propose repurchasing billions of dollars of its own shares and is negotiating with Google Inc. about an advertising tie-up. On Wednesday, Yahoo announced a short-term test under which it will carry search advertising from Google.

Under the terms being discussed, Time Warner would fold its AOL unit into Yahoo and make a cash investment in return for about 20% of the combined entity, the people said. The deal, which wouldn’t include AOL’s dial-up access business, would value AOL at about $10 billion. As part of the deal, Yahoo would use the Time Warner cash and additional funds to buy back several billion dollars worth of its own stock at a price somewhere in the middle of the range between $30 and $40 a share, the people said. Any deal would be taken to Yahoo shareholders for approval, the people said.

Geary Interactive has announced acquiring Fathom Online, an SEO company.

Fathom was formed in 2002 and is based in San Francisco. The terms of the acquisition were not disclosed. Geary is a full service digital marketing agency based in San Diego. Some of Fathom’s employees are now working out of the San Diego office.

Andreas Roell, president and CEO of Geary Interactive, said:

Search engine tactics are the most popular element of a digital marketing campaign. In order to effectively generate search demand and convert customers’ search clicks, the campaign must also include a strong integration with web development, paid and organic digital media planning and data analytics.

Andrew Girdwood notes that Compete.com was purchased by Taylor Nelson Sofres (TNS) for $75 million.

TNS’s release reports that Compete.com’s 2007 revenue was “$14.9 million, over 50 per cent higher than in the previous year.” TNS will pay in deferred cash payments throughout now and 2010, up to a maximum of $75 million.

David Lowden, Chief Executive of TNS, said:

This acquisition is an important move for TNS that builds on our ability to help clients understand consumer behaviour in the new and highly complex digital world. Compete has built a world-class digital intelligence capability that delivers multiple perspectives on how consumers engage with brands online. Its strength lies in its ability to provide competitive analysis of individuals’ online behaviour, a rapidly growing section of the market that has enormous potential.

TNS will enhance this offering by putting it together with the understanding of consumer attitudes and behaviour that we gain from our access panels. We will use our network to offer this powerful combination to clients across the globe. In the longer term, we will look at the opportunities to add further value by using our Worldpanel, Retail & Shopper and audience measurement capabilities to integrate data on purchasing and viewing behaviour with internet search and shopping behaviour. We believe this will allow TNS to develop new syndicated and custom products, unique in our industry.

Postscript: The news is now also on the Compete.com blog.