Microsoft, Yahoo! Team For Web Search

Yahoo! searches to be powered by Bing.

It seems Yahoo! has had to bend to the might of Microsoft’s will, to some extent, after all. While there’s no buyout announcement the deal that has been inked is almost as interesting: Yahoo! Search is to be replaced by Microsoft Bing.

The 10 year agreement – about as close to indefinite as possible in the digital age – will see Yahoo! “become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.” Microsoft’s AdCentre, and its automated auction process for determining prices, will take over as the self-service platform for both companies although it should be highlighted that both Yahoo! and Microsoft will still maintain separate display advertising and sales businesses.

Despite being powered by Bing, Yahoo! will still have control over the user experience on its sites – including search. And Yahoo! will keep its existing partnerships for search syndication.

Microsoft will be compensating Yahoo! for traffic generated via the search partnership with a revenue sharing scheme – the details of which haven’t been revealed. Similarly, Microsoft will be paying Yahoo! traffic acquisition costs at a rate of 88 percent for an initial five year period.

Microsoft is guaranteeing Yahoo!’s search revenue for the first 18 months of the partnership, although both parties expect that to be unnecessary with Yahoo! predicting an annual cashflow improvement in the region of $275 million within two years of a full implementation of Bing-powered Yahoo search.

In return for all this, Microsoft gets, first and foremost, a huge boost to Bing’s user base which is valuable not only for brand awareness, but also means a larger data source for refining the search algorithms used. On which note, Microsoft also gets a 10 year license to Yahoo!’s search technology, which it can integrate into its existing web search platforms.

It’s worth pointing out that despite today’s announcement, the agreement could still fall through, as it is subject to “regulatory review.” However, both Microsoft and Yahoo! are confident there won’t be any hold-ups and hope to close the deal in early 2010.

Whether this partnership will be enough to ensure Microsoft and Yahoo! maintain a fighting chance against Google – and its 81 per cent global web search market share – remains to be seen. I for one am grabbing my popcorn and settling in to watch how this plays out!

Microsoft press release
Yahoo! press release.
Microsoft, Yahoo! Joint Website.

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