Microsoft and Yahoo search deal: Here's what you need to know

With the deal signed and ink drying, you may be wondering about the details behind the historic Microsoft and Yahoo search agreement, which may finally begin to put some pressure on Google's dominance in search. We break it down for you.

The Basics

  • Yahoo will adopt Microsoft's new Bing search engine.
  • Yahoo will take over premium search advertising on both Yahoo! Search and Bing.
  • Self-serve advertisers will use Microsoft's AdCenter system on both sites.
  • The agreement will last for 10 years
  • The deal will still need regulatory approval, which Microsoft and Yahoo hope to have by early 2010.
  • Even though it will use Bing under the hood, Yahoo will have full control as to how its search looks and operates.
  • The agreement does not cover each company's web properties and products, email, instant messaging, display advertising, or any other aspect of the companies' businesses.

The Details

  • Yahoo is giving Microsoft a 10 year license to its search technologies, which the Redmond company may integrate into Bing or other sites.
  • The deal does not cover standard display advertising on other Microsoft and Yahoo sites, only search ads.
  • The transition to Bing will start in the US and take between 3 and 6 months. Yahoo moving from its own Panama ad system to AdCenter will take 12 months.
  • Microsoft CEO Steve Ballmer says he expects 2 years of transition costs and a few hundred million dollars in expenses.
  • Some Yahoo engineers may become Microsoft employees.
  • Microsoft and Yahoo expect Google to fight the deal, but feel the company has little ground to stand on since it controls so much of the market.
  • Some Yahoo employees will lose their jobs, but Yahoo CEO Carol Bartz had no numbers to share.
  • Advertisers buying through AdCenter will have no control whether their ad appears on Bing or Yahoo! Search. The companies will be strictly selling a combined market.
  • Yahoo will have the flexibility to integrate Bing into its other properties, such as Yahoo! News.

The Money

  • Microsoft is not paying anything up front for Yahoo to adopt Bing and AdCenter, something investors are not too happy about.
  • Microsoft will pay Yahoo 88% traffic acquisition costs (or TAC) at an initial rate of 88% of search revenue. This rate will last for 5 years.
  • Yahoo expects the deal to add up to $500 million in operating revenue annually and save the company $200 million.
  • Cash flow to Yahoo is expected to go up $275 million per year when the transition is complete.
  • The deal being discussed last year with the up-front payment was more invest oriented Bartz and Ballmer said.
  • Yahoo will continue expanding its search affiliate partnerships.
  • Microsoft will guarantee Yahoo revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.

Why the deal was done

  • With both Microsoft and Yahoo sites driving Bing, the algorithms will improve and the results get even better. This is much better than if each site operated independently.
  • Google controls around 78% of paid search.
  • Advertisers will benefit from scale and working with a single platform (AdCenter) and sales team for premium advertisers (Yahoo).
  • Even with Microsoft controlling the search results, Yahoo feels it can still be innovative. For example, it can put information and links to Yahoo services above the results.
  • Yahoo didn't want a bunch of cash up front, it wanted a sustained revenue source moving forward.

© 1998-2018 BetaNews, Inc. All Rights Reserved. Privacy Policy - Cookie Policy.