According to a report on Wednesday, Yahoo is in the process of identifying as many as 400 engineers who may be headed to Microsoft after US government regulators do their anti-trust review and clear the companies’ search deal. The formal agreement between the two companies closed at the end of last week.
The 400 engineer transfer is part of the formal agreement between the two companies. In addition, Microsoft is to pay Yahoo $150 million to defray costs associated with the partnership’s implementation. The Associated Press is also reporting that the $150 payment will likely be accelerated by Microsoft.
Separately, Yahoo CFO Tim Morse told an audience at the recent Barclays Global Capital Technology conference that Yahoo’s search business was getting healthier and that revenue per search were improving, according to PaidContent.
At every turn Yahoo is having to repeat that it hasn’t exited the search business and that the Microsoft deal will be a boon by virtue of its cost savings. However, the departure of so many engineers may have a negative ripple affect across the company’s entire business as it struggles to keep pace with Google and Microsoft across a range of fronts, not to mention Facebook.
Many talented people remain at Yahoo but the company has seen a dramatic brain drain over the past 24 months especially in search. According to comScore, Yahoo has seen its search market share drop from 20.1 percent in May, 2009 to 18 percent in October. The most recent Hitwise data show Yahoo with a lower share.
Yahoo retains the second largest destination on the US Internet, although Microsoft contends that globally MSN is larger than Yahoo:
We’ll see over time whether the end of search R&D at Yahoo and the loss of engineering talent will adversely affect the entire business. My suspicion is that it will and that while it may help boost margins in the near term it will cost Yahoo over the long term as innovation is diminished. I sincerely hope that Yahoo proves me wrong.