It has finally happened, what has been brought to the table and then taken away from the table over the last few years has finally been written in stone – Microsoft and Yahoo join forces! Under the new agreement Microsoft’s newest search engine technology, Bing will power Yahoo! Search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.
Key Facts of Yahoo/Microsoft Agreement
The term of the agreement is 10 years;
Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms;
Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.
Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.
Each company will maintain its own separate display advertising business and sales force.
Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.
Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.
Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
Yahoo! will continue to syndicate its existing search affiliate partnerships.
Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.
At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.
The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.
What it means for Yahoo! Search Not a whole lot in terms of what the typical Yahoo user will see when using the search engine. Users will see the ‘Powered by Bing’ in search results and those search results will be powered by Microsoft’s servers and search engine technology but on the Yahoo search page, everything will look similar to what it looks like today more than likely.
Microsoft said the deal would not close until sometime in 2010 and then after the deal closes the changes will not take place for several months.
Search Engine Market Share Even with Microsoft and Yahoo joining forces, Microsoft will still own only about 30% of the search market share with Google holding about 65% and the other 5% go to the other hundreds of other search engines. However, it’s a big step and the largest amount of search engine share Microsoft has ever owned in the market, so it definitely gives them a leg up.
Yahoo’s stock (YHOO) sank nearly 11% so far today in trading down to $15.35 a share with investors worried about the fate of the search engine deal. On the other hand, Microsoft’s shares (MSFT) were up slightly in trading to 1% at $23.75 a share with news of the deal.