Microsoft Corp and Yahoo Inc sealed a 10-year Web search deal to better compete against market leader Google Inc. The long-expected deal means Microsoft's new Bing search engine will be combined with Yahoo's experience attracting advertisers in the first serious threat to Google Inc -- if the companies get regulatory approval and can make the partnership work.Here’s how the Yahoo-Microsoft deal will work out: Financial details, search, advertising, risks, obstacles and more...
Financial details
* Microsoft will guarantee the revenue per search for Yahoo's owned and operated sites in each country for the first 18 months after initial implementation in that country.* Yahoo expects the agreement to boost annual GAAP operating income by about $500 million within two years and help capital expenditure savings by about $200 million. Yahoo also expects the partnership to add about $275 million to annual operating cash flow.
* Microsoft will pay Yahoo through a revenue-sharing agreement on traffic generated on Yahoo's network of both owned and operated and affiliate sites.
* Microsoft will pay traffic acquisition costs to Yahoo at an initial rate of 88 percent of search revenue generated on Yahoo's owned and operated sites for the first five years.
Advertising
* Yahoo will act as the global sales force for both companies' premium search advertisers.* Microsoft's AdCenter platform will fulfill self-serve advertising for both companies.
* AdCenter's automated auction process will set prices for all search ads.
* Each company will keep its own separate display advertising business and sales force.
* Yahoo will act as the global sales force for both companies' premium search advertisers.
* Microsoft's AdCenter platform will fulfill self-serve advertising for both companies.
* AdCenter's automated auction process will set prices for all search ads.
* Each company will keep its own separate display advertising business and sales force.
Search
* Under a 10-year license, Microsoft will be able to integrate Yahoo's core search technologies into its current 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, including display advertising technology.
* Yahoo will innovate and "own" the user experience on its own properties, including the user experience for search, even though it will be powered by Microsoft technology.
* The agreement restricts the use of search data shared between the companies. To protect consumer privacy, it will limit the data shared between the companies to the minimum necessary to operate and improve the combined search platform.
* Yahoo! will continue to syndicate its current search affiliate partnerships.
* The companies will continue to compete in other areas as the agreement does not cover each company's Web properties and products, email, instant messaging or display advertising.
Job cuts at Yahoo
Carol Bartz, CEO, Yahoo, said the deal will result in "redundancies" in Yahoo's staff, although she declined to be specific. She stressed any changes would not occur until after full implementation of the partnership.Also, many Yahoo search engineers will be asked to take jobs at Microsoft, whose Redmond, Washington headquarters is far removed from Yahoo's California homebase.
Risks
"There are risks on both sides. Big deals like this tend not to work out. It's a long-term deal that's going to take a long time to implement," said Ryan Jacob, chief investment officer of Jacob Asset Management, the $40 million fund holds some Yahoo shares. "It's better than no deal."And unlike previous discussions which involved an outright acquisition of Yahoo by Microsoft, this deal will create a number of uncertainties for both companies as they fuse disparate technologies, cultures and business priorities.
Yankee analyst Carl Howe said integrating two separate search engines is an inherently thorny process that requires merging vast and often incompatible indices of Web data.
Anti-trust obstacle
Microsoft and Yahoo still face antitrust and privacy issues. Google dropped a planned search partnership with Yahoo last year under pressure from the US Justice Department.
The partnership poses only a theoretical challenge to Google at present. It could take two-and-a-half years to get approval and be fully implemented, according to Yahoo CEO Bartz, which would mean the partnership would not be fully effective until early 2012.
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