Renegotiating Search Deal, Yahoo And Microsoft Extend Deadline

According to a Reuters report, Yahoo and Microsoft have extended a negotiating deadline as they try to determine the form their search partnership may take over the next five years. The original deal was crafted during a different time by different CEOs.

Even though the original agreement was for a period of ten years, apparently after five years the contract allows for a renegotiation or exit. This original contract was signed by the companies in 2010. According to Reuters, which reviewed a Securities and Exchange Commission filing, the deadline has been extended from February 23 to roughly the end of April.

The Search Alliance, as the Yahoo-Microsoft relationship is called, has underperformed expectations — especially for Yahoo. The two companies’ combined share of the US search market has remained basically flat for the past five years, hovering between 29 and 31 percent. However Bing has grown its share, mostly at Yahoo’s expense.

Current Yahoo CEO Marissa Mayer, who inherited the Search-Alliance deal from former CEO Carol Bartz, has been openly critical of it. She has tried with some success to reinvigorate search and paid-search advertising at Yahoo outside of the Search Alliance framework. Most recently Yahoo captured the US “default” search slot from Google on the Firefox browser and saw a bump in marketshare, some of which has now been given back.

Despite Mayer’s criticism of the Search Alliance, I would be surprised if the company completely abandoned of the deal. Doing so would probably require many millions of dollars of additional investments to recreate what existed before Yahoo turned search over to Microsoft. Yahoo’s institutional investors would also probably balk at the move.

For its part, Microsoft is somewhat less dependent on Yahoo traffic today than it was in 2010 when Bing was in third place. Both parties may thus have incentives to alter the terms of the deal.

It’s not clear what the deadline extension says about the state of negotiations. However I suspect we will see some different terms emerge and changes in the relationship.