Microsoft and Yahoo this morning made it official, announcing plans to join forces against Google through an Internet search and advertising partnership. Under the arrangement, Microsoft Bing would "power" Yahoo search, while Yahoo would be responsible for selling search advertising for both companies, using Microsoft's underlying AdCenter system.
The deal will require regulatory review, and the companies say they hope to complete it in early 2010.
Combined, they would have nearly 30 percent of the U.S. search market -- still less than half of Google's market share, but considerably more than the 8 percent Microsoft has now. Microsoft CEO Steve Ballmer says the arrangement would give the companies the critical mass needed to provide advertisers a viable alternative to the search giant.
“Success in search requires both innovation and scale. With our new Bing search platform, we’ve created breakthrough innovation and features," Ballmer said in a news release. "This agreement with Yahoo! will provide the scale we need to deliver even more rapid advances in relevancy and usefulness. Microsoft and Yahoo! know there’s so much more that search could be. This agreement gives us the scale and resources to create the future of search.”
Yahoo CEO Carol Bartz said in the news release that the deal "establishes the foundation for a new era of Internet innovation and development."
Here are the details of the agreement, as outlined by the companies this morning.
"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 percent of search revenue generated on Yahoo!’s O&O sites during the first five years of the agreement; and o 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."
More to come.
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