Danny and I had an opportunity to talk with Microsoft SVP Yusuf Mehdi and Yahoo EVP Hilary Schneider earlier this morning. Both were instrumental in the deal and will be deeply involved going forward. They characterized the parties’ search integration as a long-term partnership, which implies ongoing cooperation and a high degree of collaboration.

We had a limited time to get a range of questions out but we were able to get a bit more clarity than we had from just the conference call and press release this morning.

Yahoo is going to be doing “premium search” sales. What is “premium search”?

Hilary Schneider explained that the bulk of growth in paid search spending over the next several years is going to come from “medium and larger” advertisers (think: Fortune 1000, brands). She said that “2/3 to 3/4 of all the spend” will be coming from larger advertisers. Yahoo will be the partner servicing and selling those categories of advertisers, which also feature “more complexity in their campaigns.” Smaller advertisers will deal directly with adCenter’s self-service platform. SEM firms using APIs will deal directly with Microsoft. Indeed, all search-related APIs will be supported by Microsoft.

Hilary said advertisers that had been pre-briefed were “thrilled” that they would be getting more scale via the deal. Yusuf Mehdi added that Microsoft and Yahoo would “go out jointly to the market to explain” how accounts will be handled going forward.

At the five year mark, Yahoo apparently has the unilateral option to alter the sales arrangement if it so chooses.

One outstanding question: Since Microsoft will have its own display advertisers — display is not part of the deal — presumably there will be some large/brand advertisers that have relationships with both Yahoo and Microsoft. It’s not clear how those situations will be handled. Who “owns” the relationship in such cases?

What does the agreement cover precisely?

The deal covers “web, image and video search.” Mehdi explained there will be a single crawl and a single index that both parties will have equal access to — “parity” in his words. He made the additional point that Google never provided full parity to partners and third parties using its index.

Yahoo has a broader option but is not required to use Microsoft in areas beyond those explicitly mentioned above — for example in Maps and Mobile. Hilary emphasized that Yahoo “remains committed to owning the user experience,” but could well use Microsoft search results more broadly than in just the web, image and video categories. It’s plausible that at some point Yahoo might simply adopt Virtual Earth as its own mapping platform (however I’m speculating entirely there).

Also note that if there is a single crawl and a single index, as Yusuf Mehdi explains, Yahoo will in fact need to use that index in other areas that do rely on a search crawl as opposed to structured data feeds from third parties.

What about BOSS and SearchMonkey?

Mehdi said that Microsoft will be taking them on (”the code and the responsibility”). Beyond this he suggested that Bing would be incorporating the best of Yahoo’s search assets and user experience into its platform and technology, including, for example, Search Monkey.

I then asked the follow-up question: If Bing incorporates the best of Yahoo Search and Yahoo is using the same index and has the same results as Bing, what will differentiate the two engines or sites in the future?

The answer was general: Yahoo will do UX innovation in mobile and on its various internet properties. The contention is that greater scale and a unified platform permits greater innovation for both parties “on top” of the core search index and technology. But it’s not clear how that will play out in a specific user-experience ways.

What happens with contextual advertising?

Medhi said that “We’ll build it and Yahoo will sell it.”

How will the deal affect Yahoo’s newspaper consortium?

Yahoo’s newspaper relationships have repeatedly been cited as strategic for the company. As might be expected Hilary Schneider said that this deal would make those partnerships better. The newspaper publishers have started to sell Yahoo search as well as display advertisering. She added they would now get greater reach through the combined platform and partnership.

What happens in 10 years?

The term of the announced deal is 10 years. What happens when it expires? Hilary Schneider said that she hoped that the partnership would be very successful and that it would be a “lifetime partnership.”

What do you say to the people who contend that this deal is a win for Microsoft and that Yahoo has given up in search?

They disagreed with that contention, as one would expect. In particular, Hilary Schneider emphasized that over the long term it would constitute “a winning play” for Yahoo because it would strengthen the company’s relationships with advertisers and provide a stronger platform. She added that she believed the deal would “accelerate innovation” and allow Yahoo to invest more aggressively in consumer experiences that are now the core focus of the company under CEO Carol Bartz.

There are still a number of unanswered questions, and some probably that the parties haven’t answered for themselves. We’ll have much more to say over the next several days on the topics touched upon here, as well as others.

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
• The Microsoft-Yahoo Search Deal, In Simple Terms

Microsoft today released version 2.0 of its Live Search API, also called “Silk Road,” that offers support for multiple data exchange protocols, access to more search resources and the ability for developers to pull in ads to help monetize search applications they build.

The previous version of the Live Search API only supported SOAP as a way to pull search information into a site or application. The new version supports JSON, RSS and XML.

The types of search data that can be retrieved and used have been expanded. In addition to things like web search results, spelling suggestions, images, news articles, feeds and phonebook results, the new API allows access to related searches and Encarta encyclopedia references. Reranking of results is also supported. There’s also no restriction on number of requests.

Microsoft ads can now also be pulled in through the API, helping developers produce applications that earn them money. This is the first time Microsoft has more broadly allowed ad distribution outside a small network of publishers that it negotiates or those in the limited Microsoft adCenter Publisher Program. In contrast, anyone can sign-up to carry Google ads through its AdSense program, which allows publishers to carry contextual ads (ads that appear based on the context of a web page) as well as show search results with ads alongside them using AdSense For Search.

Beyond Google AdSense, Google Custom Search Engine allows for search results to be more tailored and carry ads. This puts Microsoft’s new API as much more a challenge to that, not to mention Yahoo’s BOSS. See our past article, Yahoo Lets You “Build Your Own Search Service”, for more about that service.

To date, BOSS still doesn’t allow monetization of search applications built using it. More important, the success Yahoo pitched when BOSS initially launched has yet to materialize. The company has only a few examples of prominent sites using the service, which they once suggested would power up to 25 percent of all searches online. OneRiot (see Me.dium Changes Name To OneRiot, Launches Social Search Engine) continues to be the main poster child for BOSS, and it has what seems to be minimal takeup, at best.

Microsoft, when I talked with them about the new API yesterday, sounded similar to Yahoo in how they hoped it might change things. But if Yahoo hasn’t seen a great success, why does Microsoft think things will go so much better for them?

For one, Microsoft said it has a strong developer community. True — though these are more software developers rather than web developers. Perhaps we might see Microsoft grow as a search resource pulled into software applications, I suppose. But on the web, I’d say plenty of developers are aware of offerings from both Google and Yahoo, yet we still don’t seem to have had APIs be a major game changer in growing search share (applications that pull from Google Maps and Microsoft’s Virtual Earth seem to be the main exception, to me).

When I asked about major API users out there now, Microsoft put out names like Facebook, SAPO in Portugal, China Telecom and Viacom. But these are really search syndication partners, not your more classic API users. Indeed, only Facebook is actually using the API itself, Microsoft said. And looking at a search on Facebook versus regular Live Search, I can’t see that using the API is helping Facebook that much. Rankings are slightly different, but the main usage seems to be matching Live Search results to Facebook’s look and feel.

Overall, I’m sure developers will welcome the upgraded API (be sure to check out the Live Search Developers Center for more). Perhaps we’ll see some of them use it for web apps, such as how Microsoft is now demoing how you can search within Hotmail and drag-and-drop results into your email.

That’s interesting. For example, you can search for restaurants right within Hotmail, then insert the result into a mail message. The same is true for other things, like movie times. In the screenshot below, notice the links to the right of the message compose window:

If you click on something like movie times, you get results (with your location being guessed at):

Clicking insert copies the information over to your message:

As an aside, some annoyances. I couldn’t find some restaurants I know exist, and there doesn’t seem to be a “remember my location” option.

More important, many “external” search tools such as Google Maps allow you to find information and then email the results. That’s not quite the same as treating a search result as an “object” within an application — which is useful! — but it’s not an entirely new direction being introduced here.

In general, the new API seems an incremental step toward growth rather than a major leap that many people keep hoping for. But incremental is fine — that’s more likely how anyone may eventually build share against Google, through a lot of little incremental moves.

The Live Search Blog announced that the Live Search SOAP API is now out of beta. In addition, they added some new features including more languages, increased search results, enhanced search tags, more local options, improved phone results and more coding samples.