Yahoo said the implementation will begin in the next “days.” Here is the announcement:

Implementation of the deal is expected to begin in the coming days and will involve transitioning Yahoo!’s algorithmic and paid search platforms to Microsoft, with Yahoo! becoming the exclusive relationship sales force for both companies’ premium search advertisers globally. Once the transition is completed, the companies’ unified search marketplace will deliver improved innovation for consumers, better volume and efficiency for advertisers and better monetization opportunities for web publishers through a platform that contains a larger pool of search queries.

Several Yahoo blogs have discussion around this. They include the Yahoo Search Blog, Yahoo Search Marketing Blog and Yahoo Developer Blog.

We will have more on this later, but see our archives for more details.

Here is the full release:

SUNNYVALE, Calif. & REDMOND, Wash.–(BUSINESS WIRE)–Microsoft (Nasdaq:MSFT – News) and Yahoo! (Nasdaq:YHOO – News) announced today that they have received clearance for their search agreement, without restrictions, from both the U.S. Department of Justice and the European Commission, and will now turn their attention to beginning the process of implementing the deal.

Implementation of the deal is expected to begin in the coming days and will involve transitioning Yahoo!’s algorithmic and paid search platforms to Microsoft, with Yahoo! becoming the exclusive relationship sales force for both companies’ premium search advertisers globally. Once the transition is completed, the companies’ unified search marketplace will deliver improved innovation for consumers, better volume and efficiency for advertisers and better monetization opportunities for web publishers through a platform that contains a larger pool of search queries.

“This breakthrough search alliance means Yahoo! can focus even more on our own innovative search experience,” said Yahoo! Chief Executive Officer Carol Bartz. “Yahoo! gets to do what we do best: combine our science and technology with compelling content to build personally relevant online experiences for our users and customers.”

Microsoft CEO Steve Ballmer concurred with Bartz’s assessment. “Although we are just at the beginning of this process, we have reached an exciting milestone,” Ballmer said. “I believe that together, Microsoft and Yahoo! will promote more choice, better value and greater innovation to our customers as well as to advertisers and publishers.”

Consumer Search Experience

Under terms of the agreement, which was announced in late July 2009, Microsoft will provide Yahoo! with the same search result listings available through Bing, and Yahoo! will innovate around those listings by integrating rich Yahoo! content, enhanced listings with conveniently organized information about key topics, and tools to tailor the experience for Yahoo! users.

Yahoo! will focus on providing a compelling and innovative search experience that allows people to find and explore the things, people and sites that matter most to them. While Microsoft will provide the underlying platform, both companies will continue to create different, compelling and evolving experiences, competing for audience, engagement and clicks.

Transition Timeline

Yahoo! and Microsoft will work with advertisers, publishers and developers on a customized plan designed to make the transition as efficient and seamless as possible. Both companies will begin working closely with most partners well in advance of their planned transition to the Microsoft platform and will communicate important information to partners about the transition periodically via phone, email, webinars and a newly created website at www.searchalliance.com.

The companies will begin the transition of algorithmic search and have set a goal of completing that effort in at least the United States by the end of 2010. The companies also hope to make significant progress transitioning U.S. advertisers and publishers prior to the 2010 holiday season, but may wait until 2011 if they determine that the transition will be more effective after the holiday season. All global customers and partners are expected to be transitioned by early 2012.

Customer Relationships

Once the transition is in place, Yahoo! and Microsoft will each represent and provide customer support to different advertiser segments. Yahoo!’s sales team will exclusively represent and support high volume advertisers, SEO and SEM agencies, and resellers and their clients. Microsoft will represent and support self-service advertisers.

Regulatory Summary

Although the transaction previously was cleared by regulators in Australia, Brazil and Canada, the terms of the agreement required clearance by U.S. and European regulators before it could commence. Meanwhile, Microsoft and Yahoo! continue to work with regulators in Korea, Taiwan, and Japan to ensure that they have all relevant information necessary to evaluate the transaction before the deal commences in those specific jurisdictions.

About Microsoft

Founded in 1975, Microsoft (Nasdaq:MSFT – News) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft Web page at http://www.microsoft.com/presspass on Microsoft’s corporate information pages. Web links, telephone numbers and titles were correct at time of publication, but may since have changed. For additional assistance, journalists and analysts may contact Microsoft’s Rapid Response Team or other appropriate contacts listed at http://www.microsoft.com/presspass/contactpr.mspx.

About Yahoo!

Yahoo! attracts hundreds of millions of users every month through its innovative technology and engaging content and services, making it one of the most trafficked Internet destinations and a world-class online media company. Yahoo!’s vision is to be the center of people’s online lives by delivering personally relevant, meaningful Internet experiences. Yahoo! is headquartered in Sunnyvale, California. For more information, visit pressroom.yahoo.com or the company’s blog, Yodel Anecdotal (yodel.yahoo.com).

This press release contains forward-looking statements concerning risks and uncertainties with respect to Yahoo!’s search agreement with Microsoft. The potential risks and uncertainties include, among others, the expected benefits of the agreement with Microsoft may not be realized, and the response or acceptance of the agreement by publishers, advertisers, users, and employees and Yahoo!’s strategic and business partners.

Yahoo! is the trademark and/or registered trademark of Yahoo! Inc. All other names are trademarks and/or registered trademarks of their respective owners.

For background about the deal, see our post, The Microsoft-Yahoo Search Deal, In Simple Terms.

The companies issued this statement:

“Microsoft and Yahoo! believe that this deal will create a sustainable and more compelling alternative in search that can provide consumers, advertisers and publishers real choice, better value, and more innovation.

“Yahoo! and Microsoft welcome the broad support the deal has received from key players in the advertising industry and remain hopeful that the closing of the transaction can occur in early 2010.”

While the deal still faces regulatory approval, today’s announcement means Microsoft and Yahoo can now move forward with their integration plans. Officials in Canada and Australia have already signed off on the agreement.

There’s more discussion on Techmeme.

Among the big internet companies Yahoo has been the leader in mobile advertising to date. However Google recently bought both AdMob (in a highly publicized announcement) and Teracent (in a less publicized one). Both companies’ assets combined offer a range of powerful capabilities in mobile display advertising, including generating dynamic creative elements to take advantage of location, demographics, behavior and context, on the fly. This kind of approach is critical to realize the promise of LBS, as well as mobile display advertising more generally.

Google also already dominates the traditional form of mobile search (if I can use “traditional” and “mobile” in the same sentence).

For all the big players, including Facebook, mobile has quickly become strategic. Earlier this week Bing rolled out a rich mobile app (with voice search) for Windows Mobile and is reportedly working on one for the iPhone. Furthermore, Microsoft’s advertising partnership with Verizon gives it privileged access to the nation’s largest carrier’s audience — although not on Android devices in the same way. Recognizing the strategic value of mobile, Microsoft is sure to spend handsomely on it over the course of the next 3-5 years at the very least. Indeed, the Google vs. Microsoft battle will increasingly play out in a mobile context:

• Android vs. Windows Mobile
• Google vs. Bing mobile search
• Mobile display advertising
• Mobile company acquisitions

Yahoo’s mobile homepage and mobile search are very strong. In some ways Yahoo is more competitive in mobile search than it is on the PC, where its share appears to be eroding somewhat in favor of Bing. As part of the larger Yahoo-Microsoft search deal, Yahoo mobile will use the Bing back end to power search results on mobile devices as well as on the PC.

Recently Yahoo made mobile chief David Ko in charge of “audiences” in North America, reporting to Hilary Schneider. The company also put mobile product development under CTO Ari Balogh. This is a wise and key move for Yahoo, which must continue to innovate around mobile products and the user experience to remain competitive over time. The PC and mobile are more and more linked for smartphone users. But will the company invest the engineering resources and have the stomach for the spending battle over mobile startups that is sure to ensue?

Yahoo would certainly answer yes to these questions, but it exited search — or partially did — to save money on R&D. Yahoo at one time had the leading local search and most innovative mapping property online; however it failed to keep investing in both (although Yahoo would dispute that) and ceded leadership to Google in both arenas. Let’s hope that doesn’t happen in mobile.

A heathly and successful Yahoo is good for the advertising ecosystem, good for consumers and good for competition — which we all want to see.

The Australian Competition and Consumer Commission (ACCC) has published its findings, which say that “the proposed agreement was unlikely to result in a substantial lessening of competition.” The ACCC points to an existing deal in which Microsoft is using Yahoo’s paid search platform in Australia, and says that the two companies’ “share of online paid search advertising queries in Australia was limited.” (Ouch.)

The Canadian Competition Bureau has not yet published its findings, but has apparently notified both Yahoo and Microsoft that it won’t oppose the agreement. The two companies issued a joint statement today which says, in part, “We continue to believe that this deal will create a true, competitive alternative in the marketplace that will benefit consumers, advertisers and publishers. We remain hopeful that the agreement will close in early 2010.”

Yahoo CEO Carol Bartz is banking heavily on the idea that Yahoo can stay competitive in search even without its own search technology. I wondered if Schmidt agreed, given how much he knows Google spends on its own technology. Last week during an interview, I asked if he felt Yahoo could stay a competitive player, if it gave up its search tech.

Schmidt dodged answering that one, saying he wanted to avoid specifics, as Google hasn’t taken an stance on the deal:

We have not taken a position on the deal. First place, as you know we proposed a deal which we came within an hour of being sued by the U.S. government over. So, in the annals of Google and Yahoo, that’s the deal we would like. And obviously that can’t happen right now. So I think it probably would sound like spoiled, whatever the term is, complaining to talk a lot about the Yahoo-Microsoft stuff. Historically Microsoft has not been a very good partner in these things. And so we’ve decided to take the perspective of just waiting. Let’s see more. I’m trying to avoid answering a specific question about Yahoo. Because one, I think it’s a little unfair for me, and second is that we truly don’t know.

But Google has taken a position to some degree, putting out this statement after the deal was initially announced:

There has traditionally been a lot of competition online, and our experience is that competition brings about great things for users. We’re interested to learn more about the deal.

In other words, the search space currently has Google, Yahoo and Microsoft currently as major competitors. The worry in that statement is that the Microsoft won’t leave Yahoo as competing. In contrast, when Google announced its proposed deal with Yahoo, the fact that Yahoo would keep its technology was positioned as important for Yahoo to stay strong. When I raised this issue, Schmidt reflected lightly on the differences between the two deals and how ultimately, he thinks an independent Yahoo helps search competition:

There are some significant differences. As we understand it there are some significant differences in the deal. In our deal it was non-exclusive. In our deal they would remain in the search space. In our deal they would maintain a direct advertising sales force. There are quite a few differences. But as I said, that’s not a deal that we could get through today, and we didn’t get it through in November. So it’s sort of like, what’s to say about it? It’s part of history. We took a very strong position that an independent Yahoo was important. And I think that remains our view. Because an independent Yahoo means more competition in the space in general. It’s better for advertisers, it’s better for content. You know, Yahoo has basically become a good company.

In June — before the deal was announced — Bartz said this to the world:

“Yahoo doesn’t have to do anything with Microsoft about anything,” Bartz said at an investor conference.

Three months later, she reversed herself. A New York Times interview has her saying Yahoo couldn’t afford to do search on its own:

Ms. Bartz said she sold the search business because Yahoo could no longer continue to match the level of investment Google and Microsoft were making in searching, one of the Web’s most lucrative and technologically complex businesses.

Who does this? It’s like trying to sell a bricks-and-mortar business and saying you’ve got no choice but to do so. You’re not going to get a good price from your buyer (Microsoft), if they think you’re desperate or have no alternative (Yahoo’s already been barred from doing a deal with Google).

Worse, what if you DON’T sell that business? Are you just going to board it up? Are you going to shop it around to other buyers who realize you’re even more desperate now? Do they want to buy a business that you’ve said can’t afford to run?

That’s the situation Bartz is in if Yahoo can’t sell its search assets. Meanwhile, Yahoo employees keep leaving. Doug Cutting who left last month said his departure had been in the works for months and had nothing to do with the recent deal that was announced.

I totally believe that. I figure months before this, Cutting was smart enough to see Yahoo was done in search and wanted to move on. I suspect more people will be like that, and when Bartz has continued to suggest that Yahoo isn’t a search engine — even denies it ever was one — it just doesn’t seem that inspiring for anyone who wants to be involved with search.

Oh, but the user interface will be key! Bartz pushed that once again in a television interview out yesterday, likening search technology to being like an Intel computer processor that you build a computer around. IE — see how successful companies like Microsoft, Apple or HP have been without owning the processor? Yahoo can be the same without owning the “search processor.”

The UI isn’t going to change anything for Yahoo. In case there’s any mistake, I’ll say it again as clearly as possible:

USER INTERFACE CHANGES WON’T LET YAHOO COMPETE IN SEARCH

Got it? Write it down, someone come check back on this in five years. If Yahoo’s moved up in search share thanks to outsourcing search and just toying with the user interface, I’ll eat those words somehow — covered even in Yahoo purple frosting.

No one has succeeded as a general search engine just by making user interface changes. No one, in the past nearly 15 years of us having search engines. That’s like 150 “real” years. (For more, see A Search Eulogy For Yahoo and Why Search Sucks & You Won’t Fix It The Way You Think)

The interview ticked me off in other ways. Bartz downplayed search as something people spend only 3% of their time on. Hey, I don’t spend all my time shopping. But who do you think makes more money off of me, places I shop at or television stations that deliver me entertainment?

Bartz also joked about how “I don’t wake up in the morning and think gosh, ‘What am I going to search for’.” This was in reaction to one of the CNBC hosts interviewing her joking how Google’s big change to its home page was to make the search box larger. Yahoo, you see, is that central place where everyone starts their day.

Ha, ha, ha. Let’s laugh all the way to the bank, shall we? That “plain” home page earns plenty of money for Google from all the people who go there and, um, search on it. Making the Google search box bigger was a simple but effective change. Gosh, I’m pretty sure one of the Yahoo home page changes (it’s hard to keep track of them, as that page seems to change so often), was to make its own search box bigger. Let’s also put our heads in the sand about the fact that Google has a personalized home page service, iGoogle.

Bartz does an amazing job talking about all of Yahoo’s properties and downplaying Google as if it doesn’t compete in some of these same areas. I agree. Yahoo is a huge leader in many areas, as I wrote in my Yahoo The Failure: Myth Versus Reality piece last year. But Google does compete in a variety of ways. It’s investing in search AND in portal features. So’s Microsoft. It’s Yahoo that’s pulling back.

Watching that interview, I remarked on Twitter that Bartz is coming off with me like some type of Sarah Palin of search (Silicon Valley Insider got a kick out of that). I watch her do these TV interviews, and she’s got this “aw shucks” and “straight shooting” delivery that makes you want to believe in the things she’s saying, regardless of how they’re being spun. For me, the problem is that I know search too well for that type of spin to work on me. I just find it irritating.

I also find it amazing. Bartz is working so hard to marginalize search (last I looked, the second most popular internet activity after doing email). She’s working so hard to say that Yahoo has to give things up to Microsoft. What if she can’t dump search. What’s the Plan B? How do you recover running search on your own after having chopped off your own legs?

Here is a screen capture of the search box that now says, “Powered by Google,” taken from ConnectedInternet.co.uk, which tipped us to this:

I know the Yahoo and Microsoft deal has not been signed off on yet, but you have to admit, this is a bit comical?

Part of me thinks, “Why bother arguing?” As my A Search Eulogy For Yahoo post from last week explains, whatever Yahoo was, if the Yahoo-Microsoft search deal with goes through, Yahoo’s done as a search engine. Heck, Bartz had effectively taken it out of the search game weeks before the deal was announced by backing away from search as a feature.

Even if the deal should fail — Yahoo is still finished as a search player, now that Bartz has declared to the world that her company apparently can’t even afford to keep up. There’s no going back from that.

But part of me doesn’t like history being rewritten, especially by a CEO who should know her own company’s history. Yahoo was indeed a search engine. It was the very first “feature” that Yahoo offered. Long before email, or IM, or Yahoo Sports or Yahoo News, there’s was Yahoo the search engine.

Search was Yahoo’s origin story. To say Yahoo was never a search engine is like saying Superman wasn’t originally from Krypton or that Spider-Man was never bitten by a spider.

Yes, at first Yahoo’s search was powered by human editors, rather than machines. By 1999, the majority of search engines out there used human editors as the basis of their search. When machine-based search took over, Yahoo shifted along to that eventually, spending plenty for its own technology.

Over the years, I’ve received plenty of Yahoo press releases highlighting that Yahoo was a search engine; was in plenty of briefings where this was discussed. Yahoo spent on plenty on commercials to tell consumers this, such as the one below:

So please, spare me the talk about how Yahoo was never a search engine. It was.

It’s not now, nor is it going to be in the future. As the New York Times piece gets into, Bartz is happy hoping Yahoo hangs on to the 20% share of searches it still has as a legacy from its glory days. There’s apparently no intention to try and grow this.

The NYT piece also highlights how Yahoo expects to move even more firmly into the original content area. The company has long struggled with this. Is it a search engine that points outward to resources, or is it a content company that produces its own material? Clearly, it’ll be a content company — and maybe it will be more successful with that this time without all that search baggage.

Postscript from Greg Sterling:

A couple of years ago Yahoo certainly did consider itself a search company, with a competitive search engine. Said then SVP of search and marketplaces Jeff Weiner in 2002:

“Our objective is to provide the highest-quality search experience, and to be the leading provider of search [technology] on the Internet”

That quote appeared in an article on the heels of Yahoo’s $235 million acquisition of Inktomi in which the following paraphrase of Weiner’s remarks on search also appeared:

Yahoo feels that it can provide a better searching experience to its users if the company uses in-house engineers and assets instead of licensing technology from another company, Weiner said.

The market also thought Yahoo was trying to compete in search because there was immediate criticism and concern voiced over then Yahoo CFO Sue Decker’s 2006 comment:

“We don’t think it’s reasonable to assume we’re going to gain a lot of share from Google,” Chief Financial Officer Susan Decker said in an interview. “It’s not our goal to be No. 1 in Internet search. We would be very happy to maintain our market share.”

Decker was forced to clarify her remarks and backtrack later. Yahoo CEO Carol Bartz’s remarks seem to be something of a replay in an effort to manage expectations now that Yahoo has formally exited the search business.

Postscript from Danny Sullivan:

In various places, I keep seeing people talking about how Yahoo “outsourced” search for most of the time, bringing in names like AltaVista, Inktomi and so on. Yahoo did NOT outsource search for most of its life, and I’ll detail this for the record, below.

March 3, 1995: Yahoo’s birthday, as the company recently reflected upon. Yahoo operated before that, but this was when the company was officially incorporated. The ONLY product was search. You either browsed for web sites by following categories or you did keyword searches.

Behind the scenes, Yahoo used editors who categorized web sites to create its core listings. This was a “directory” model to search. Yahoo was unique among the early players in doing this. That did NOT mean Yahoo lacked search tech. Those directory listings had to be searched through, and quickly, and you needed relevancy algorithms applied to them.

In contrast, there was also the “crawler” approach to building listings, which is commonplace today. This is where search engine automatically visit web pages, make copies of them, then return the most relevant pages first (as best they can guess using search algorithms). That involves much more tech.

Early crawlers were good when you needed to find the needle in the haystack (”long tail search”, but the relevancy was bad for common queries, such as trying to find an official site or the best site for a popular term. Directories did much better at this — and that is why Yahoo grew in popularity over its crawler-based rivals, at first.

Yahoo did outsource to a crawler partner to provide “backup” if it had nothing for a search query out of its own database. The first partner for this was Open Text. You would only see Open Text listings if Yahoo had no listings of its own. The main listings always came from Yahoo.

Mid-1996: Yahoo partnered with AltaVista for its crawler-based backup results. The primary search results on Yahoo still came from its own directory, using its own search technology.

Mid-1998: Yahoo partnered with Inktomi for its crawler-based backup results. Again, primary search results on Yahoo came from Yahoo’s own directory, using its own search technology.

Mid-2000: Yahoo partners with Google for its crawler-based backup results. Same thing as with the other partners — Yahoo’s own listings were still the main ones that searchers saw, using its own editors, its own search tech.

Oct. 2002: Yahoo renews with Google and makes a dramatic shift to its search results. For the first time, crawler-based results are used for the main listings. They’re enhanced with references to the Yahoo Directory, but by and large, Yahoo was simply rebranding Google. This is the first time Yahoo really outsourced its search listings.

Feb. 2004: Yahoo ends use of Google’s search listings in favor of its own crawler-based search technology. In the time since renewing with Google, Yahoo went on a crawler-based technology shopping spree. It announced a deal to buy Inktomi at the end of 2002, completing that in early 2003. It also purchased Overture (formerly GoTo), known primarily for its paid search technology. But Overture also itself had recently bought both the AltaVista and AllTheWeb crawler services. Technologies from all these sources were blended together to create Yahoo Search.

Aug. 2009: Yahoo Search continues to power Yahoo’s main listings, but a deal with Microsoft would give up that technology next year. Yahoo would outsource for the second time in its history — and this time, for good.

The Outsource Myth

As you can see, Yahoo fully outsourced its search listings only once in its 14 1/2 years, from October 2002 through February 2004. That’s a total of 16 months. So for 91% of its time, aside from that tiny window, Yahoo was running its own search tech. It devoted substantial resources to search technology during the first 7 years when it used a directory system. It devoted even more substantial resources over the past 5 years it has been using a crawler-based model. To say Yahoo was never a search company simply flies in the face of the evidence.

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

We’ve read about what this means for advertisers (more overall traffic from the combined audience, use of Microsoft adCenter for self-serve and Yahoo!’s sales force for premium) and for searchers (they likely won’t notice), but what does the deal means for those who create websites: publishers, web developers, and SEOs?

Web Developers

The hardest hit by this change will likely be developers. Over the last couple of years, Yahoo seems to have shifted its focus from innovating the search index to innovating its developer offerings: encouraging third-party development and creating a “developer ecosystem” for search.

Any developer options that don’t rely on the Yahoo search index may be unscathed. In particular, the non-search development tools and search-related offerings that are solely focused on the user interface may continue to be supported. While Bing will power Yahoo’s search engine, Yahoo will control their user interface and likely will try to continue to differentiate there. That’s means Search Monkey, which enables site owners to enhance how their results appear on Yahoo, is potentially safe.

Build Your Own Search Service (BOSS) likely won’t be so lucky. BOSS is built on the Yahoo index as its foundation. A company can build their own search engine using Yahoo’s underlying technology and differentiate via the user experience.  Essentially, that’s what Yahoo is planning to do now with Bing as their underlying technology. No more Yahoo index likely means no more BOSS. Yahoo all but concedes as much: “We can tell you that BOSS will remain live for the time being.” What does that mean for companies like hakia, OneRiot, Daylife, and Cluuz? And for that matter, all of the developers using BOSS who are now filling the Yahoo BOSS message boards with questions?

On the Yahoo developer blog, Yahoo commented that “For SearchMonkey and BOSS, we currently do not have anything concrete to tell you. Clearly, we’ll need to work with Microsoft to determine what makes the most sense for you and for us.” If BOSS’s future is left up to Microsoft, I have no doubt that future will involve migrating BOSS users to the Bing search API. In order to continue to support BOSS, Microsoft would have to completely recreate it to work with the Bing search infrastructure. Why would they do that when they can increase the audience of a product they already have? It’s possible they’ll add some of the unique BOSS features their search API (such as unlimited queries, ability to mash up the data with other sources, and ability to tweak ranking signals), but I wouldn’t hold my breath. The Yahoo BOSS team is just as in the dark as the developers wanting answers. From a message board post: “What specifically does it mean for BOSS? Honestly the team is still absorbing the implications and we just don’t know.”.

BOSS users could switch to Google’s Custom Search API, but it is more restrictive than Microsoft’s offering, and isn’t really well-suited as the foundation of a search engines or other commercial company. Several other companies offer web indices, such as CommonCrawl and Alexa, so perhaps they or a new company will take advantage Boss’s imminent demise and offer matching features.

Any Yahoo offerings that don’t rely on an underlying index, such as the Yahoo User Interface library are likely going to remain. Yahoo confirmed this in their blog post:

“We’ve also received questions about the future of Yahoo!’s other developer offerings, such as YUI, YQL , and Pipes. We wanted to let you know that today’s news does not affect these products. None of our other non-search developer products are affected.” [Emphasis mine.]

However, look for any search index-based offerings (such as the Maps API and Local API) to be deprecated in favor of the Bing equivalents once the deal goes through.

Search Engine Optimizers and Site Owners

What about those who are concerned with getting customer acquisitions through organic search? How will this change impact them? From a traffic perspective, take a look at how well you’re indexed and ranked in Bing. That’s how well you’ll be indexed and ranked in Yahoo. What do your titles and descriptions look like in the results in Bing? That’s how things will generally look in Yahoo. This might not be a bad thing for site owners, as over the last year, Yahoo’s search quality seems to have been declining to the point that I’ve been wondering if their engineering team had already begun to be phased out or least was spending a lot of time at the bar mourning the likely phase out.

Just as you don’t need to optimize separately for AOL since they use Google’s index, you won’t need to optimize for Yahoo since they’ll use Bing’s index. The exception to this may be in how Yahoo displays results. We’ll have to wait and see exactly what this means, but Bing has been trying to differentiate in display and it supposedly, Yahoo will continue to do that as well. This may mean, for instance:

• SearchMonkey will continue to be important as a way to stand out in the results.
• Hmm. I can’t really think of anything else.

My guess is that the robots-nocontent tag will no longer be supported, since Bing’s infrastructure doesn’t support it. The search engines have already come together to standardize their support of robots.txt and XML Sitemaps, so site owners shouldn’t worry about changing anything with those.

The bigger issue many SEOs are concerned about is Site Explorer. Site Explorer is one of the more reliable tools for competitive backlink research. You can see a substantial list of links to any site, generally ordered according to value. That’s useful stuff! Both Google and Bing Webmaster Tools provide backlink data, but only for your own sites. Yahoo will be unable to maintain Site Explorer without a search index of their own. Will Bing take it over? Well, it could add the feature to its Webmaster Tools, but Microsoft has historically been moving the other direction. They removed the ability to query their index for link data with the link: operator in 2007 and have never brought it back for competitive research.

Microsoft likely won’t be motivated to add a feature that they specifically chose to remove. And it’s not trivial to build the code to query for competitive links and store the data. Believe me, I know. I managed the process for adding non-competitive backlink data to Google Webmaster Tools. As with the potential end to BOSS, the potential end to Site Explorer opens up new opportunities for third-parties. In fact, the same companies who build a web index could provide competitive link data. Currently, SEOmoz  provides Linkscape, which offers some similar features. (Speaking of SEOmoz, Rand Fishkin posted yesterday about the SEO impact of this deal.) Majestic SEO and Exalead provides link data as well.

More generally, will Microsoft step up its efforts with webmaster relationships? Yahoo used to have a fairly significant presence in the community. In addition to Site Explorer, they were a constant at conferences and participated in online discussions. That participation has declined lately, coinciding with the decline in search quality. Microsoft seemed to be rallying with its webmaster relationships with the launch of the Webmaster Center in November 2007. But Microsoft hasn’t updated the Webmaster Center with new features since August 2008. (A minor release in November didn’t add  new features).

Microsoft didn’t respond to my questions about their current and future resource investment in this area. They did recently release a rudimentary SEO Toolkit, although it requires Windows Vista and IIS 7.0 to run.

And what about paid inclusion? Yahoo has long offered Search Submit Pro, which essentially enables sites to pay to be included in the organic listings. Microsoft doesn’t offer a similar product and while it’s certainly possible that Microsoft will add this product to their offerings, paid inclusion is quite a substantial shift in overall approach to organic search. It’s less about the ability to implement the technology and more about belief around what constitutes an “organic” index. Danny Sullivan asked about paid inclusion at the announcement press conference. Carol Bartz, Yahoo CEO replied, ” Paid inclusion, we’ll decide on that later.” But it would be difficult for Yahoo to continue the program on its own, as Yahoo will no longer have control over what pages are included in the search index.

In the end, it’s about the traffic

The big question is will this partnership significantly change market share percentages? Depending on whose numbers you use, Google has either 65% or 74% share in the US (more in some European countries). That puts the combined Yahoo/Microsoft share at 28% or 25.5%. That’s substantial traffic, sure, and worth paying attention to. But what will the share look like in three years once the deal is done and we barely remember Yahoo ever had its own index? My guess is pretty similar to how it looks now. Except Google will probably have slightly higher share. I just don’t see anything game changing here that will cause a mass exodus from the status quo. But I’ve been wrong before. What I do know is that site owners who have ignored how their sites were doing in Bing until now do to low traffic numbers will likely start paying a lot more attention.