Microsoft confirms Yahoo deal, Bing to power Yahoo! search

Yahoo! and Microsoft have both confirmed earlier reports of a deal over search.

In a joint statement Yahoo CEO Carol Bartz confirmed "this agreement comes with boatloads of value for Yahoo!, our users, and the industry. And I believe it establishes the foundation for a new era of Internet innovation and development." Microsoft CEO Steve Ballmer said the agreement will provide Microsoft's search engine, Bing, the scale necessary to more "effectively compete" and attract more advertisers and users.

The key terms of the agreement are as follows:

  • 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.
The agreement does not cover products such as email, instant messaging, display advertising, or any other aspect of the companies' businesses. It's strictly search.

What happens to Yahoo! search now?

Microsoft has confirmed that the deal with not close until 2010. Consumers will not see a change until 3 to 6 months after that. For now Yahoo! search will be the same until the deal is approved and complete and then Yahoo! search results will be provided and branded with Bing, "powered by Bing" will appear.

Stocks and shares

Microsoft shares rose sharply yesterday afternoon when reports surfaced that Microsoft and Yahoo were about to announce the deal. The NASDAQ exchange has not yet opened at time of writing so it will be interesting to see how both companies share prices fair in the markets.


Image credit: Yahoo Finance

History of deal

The agreement ends Microsoft's talks with Yahoo, which have lasted nearly 2 years. During the talks Microsoft has evaluated a takeover bid, seen Yahoo reply to it's ultimatums and nearly miss out on a deal when Yahoo attempted to partner with Google. The Yahoo-Google partnership failed due to regulatory concerns.

Bing will now have nearly 30% market share of search in US
According to figures from ComScore, in June Google held 65% of the search market in the US, with Yahoo at 19.6% and Microsoft on only 8.4%. With this deal Microsoft's Bing market share will be up to nearly 30% market share in the US, tripling its current share. Although Bing's market share will increase, Microsoft will not be earning as much as 30% revenue market share due to Yahoo keeping their own advertising model.

Steve Ballmer, Microsoft CEO, on announcement:

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85 Comments

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The day Microsoft SEARCH of their own knowledge base becomes useful, without dozens or hundreds of immaterial leads, I will believe that Microsoft has a useful search program. Search on all their OSs through XP ( I won't touch Vista) are worse than lousy. I always use Google to search for XP problems, since MS has been useless in 99.9% of the cases.

MS take over and nothing will happen! Look at Virtual Machine... and all the other random random live stuff.... Half of the stuff on live is almost the same.... can someone say double up!!!!

I don't see this taking off unforunately..... Hope it does though but I'm skeptical!

So you're limiting yourself to using only one search engine out of some bizarre sense of loyalty to a corporation (or hatred of another)? I guess to each his own, but if I really need to find something I'll often use three or more search engines myself, and if one comes along that's better than the one I routinely use I'll switch in a second. Sticking to one company all the time and never trying out the competition is ridiculous.

Quikboy said,
Wow. Really hotdog963al? Bing.com is much easier to type in, and offers pretty much the same results...
Until they offer detrimentally better results than Google people won't consider change, since "much the same" is not a reason to change habits.

Like a lot of people i am meeting this days, i am finding Bing a lot more nicer then Google. The Bing name is catchy.

I never liked Yahoo search though... probably just there horrific homepage.

I'm Bing! Are you?

I hate the Bing name, makes me cringe every time I see it *shudders*. I'm Google search all the way, it's simple and it works and that is how I like it

I have the feeling that Microsoft will eventually take over Yahoo for a fraction of money they initially offered them.

Its not the # of players we have, its who has enough marketshare to compete with Google. You may have a local pizza shop that makes a superior pie but that large franchise down the corner is getting most of the business..and because of that gets the best pricing from vendors on pizza dough & sauce. Search is a volume game. Btw, Yahoo isn't going away and in fact will retain control over the look & feel of search on their sites.

I'm sure they will utilize the use search data almost from the get go. As for other Yahoo licensed assets, that will probably be folded into the Bing platform over 24 month period.

Finally, Microsoft grabs some real search engine market share that has eluded them for so long. By conquering other companies' services.

I've switched over to bing from google. Very nice. Anyone checked out the ticket price trend graphs? It plots price trends so you can seasonally strategize when to go on a trip. Just very well done.

However I am a LOOOONNGG time yahoo mail customer. Their webmail is so very very good and I was worried a bit about whether this was an outright purchase of yahoo or not but it seems to be limited to search, which is fine by me.

Yes, while only a search deal, Yahoo shares have already fallen since they just lost their exclusive search engine revenues, and they were troubled even before. Microsoft likely the one to gain search engine market share, at the cost of another company.

Two of the most popular sites in Australia - NineMSN and Yahoo!7 will now be using search technology by Microsoft... Interesting.

I'll go get the popcorn.

I don't get it though: The results are powered by Bing, but who serves the ads on those results pages? Bing is going to give Yahoo money when Bing's engine is the one providing the results, and they only take 12% of revenue on those pages? I guess that make it back after those first 5 years.

How does this make Microsoft money, besides having a larger search market share? Whose ads are on those pages?

Yeah, I think Microsoft is looking at this more as a technology investment during the first 5 years. You don't take on an entrenched entity like Google with a 2 year plan...you need to think long term.

That 12% is probably just to cover the cost of migration of Yahoo's Search and Ad platform, and help offset ongoing development of Bing. But like you said, after 5 years they should start reaping the rewards.

its 88% of revenue from traffic directed from Yahoo's site. So Microsoft actually earns more.

Revenue earned from msn.com and bing.com will still be kept by microsoft.

so now they are trying to use brute force to take on google...i still dont think its gonna work..google has far superior search technology....evne if you combine yahoo and microsofts technology they still dont equal the power of google. take over in ads may be possbile but not search quality

How do you know?? they havent combined the technology to see the fruits of it... i think you should give it time to see what turns out..

I don't get it, are you saying you don't want competition? You don't want something to come along that's better than Google, because that's when consumers really win in these type of situations. Anyone who mindlessly praises Google seems to be wishing for a monopoly in the search market, and that's never a good thing.

GreyWolfSC said,
I get as good or better results from Bing compared to Google.

Aye, me too usually. So much for Google's "superior search algorithms"; Bing holds its own just fine in that regard from my own experience.

It's the Google distortion field - "Google has always given me relevent results" and most times it does. But not always. I find it on par with Bing.

People who will still stick to Google just can't break habits. Instead, they'll just claim that Google is still better.

Quikboy said,
People who will still stick to Google just can't break habits. Instead, they'll just claim that Google is still better.

Perhaps because it IS better, I gave Bing a shot, they failed to provide the search results I'm used to with Google.

What's the point? I mean instead of purchasing each other they should think of new algorithms as google did. google just bought youtube few years ago and now it pays off. They are not gonna win this game

The point - for consumers, the Bing engine now will have more search data so they can make existing/new algorithms more effective. For advertisers, one less ad platform to interface with...there are cost savings intrinsic with that.

YouTube is a money hole for Google, it didn't make a cent. They're still figuring out what to do with the service - no one is advertising on the site full of amateur videos, and premium content is not given away for free.

lol.. as much I'd like to see Bing really compete with google.. i love the fact the googles clean interface on their homepage loads quick and does the job fast. Bing, too much detail, with the homepage pic and all that nonsense..

I still cant brush the habit of typing google ctrl+Return

dimithrak said,
lol.. as much I'd like to see Bing really compete with google.. i love the fact the googles clean interface on their homepage loads quick and does the job fast. Bing, too much detail, with the homepage pic and all that nonsense..

I still cant brush the habit of typing google ctrl+Return
Heh, I don't use either one's homepages; I search directly from the search bar in IE8 every time. I have Bing set to the default, and switch to Google if I need additional search results afterwards. :)

manmohanjit1 said,
Wait, I am clueless about this deal. What is it?

On Yahoo the search boxes will say Powered by Bing, that's all the end user will notice.

I agree as this may be a way to further redeem themselves. I for one support Microsoft, but I hope that they are finally learning that the consumer matters.

On another note, I have found "Bing" to work very well for a search engine, and I would compare Bing with Google's search engine as being virtually identical in terms of search results.

Heh, probably. Though growing the search marketshare is way more important than owning any of yahoos other sites. I suppose Flicker would be worth it, the rest though, I doubt it.

C_Guy said,
Yup, that's exactly what an increase in stock price means.

woohoo, a whopping $.50 gain, you really are desperate for good news.

bob_c_b said,
woohoo, a whopping $.50 gain, you really are desperate for good news.

I can't say I agree with the deal either, but what exactly would you have them do? dance like monkeys and hope Google dies?

macrosslover said,
I can't say I agree with the deal either, but what exactly would you have them do? dance like monkeys and hope Google dies?

I don't think you can prove to me that MS should be in the search business at all, seems like wasted effort.

bob_c_b said,
I don't think you can prove to me that MS should be in the search business at all, seems like wasted effort.


Ah, so you don't think Google should be getting into the operating system business then, yes? Since clearly no company should be in both, as your opinion suggests.

you buy them real low and you sell them high, basic rule really
and you didn't read the previous article or care to pay attention at stock market to buy yahoo stock now.

Yes it does! Microsoft now takes a larger marketshare and will slowly inch closer to having 50%, being tied with Google at roughly 50%. This will only help improvement Microsoft's relationship with Yahoo and improve Bing's search power

2Andrew Lyle: If u call 18-22% ruffly of Bing + Yahoo! a 50% and its close to Google which holds 75%+ in the USA and just about 90% worldwide then ye you are right... and bing will over take google...
P.S. I'm pretty sure Bing + Yahoo! will never go over 30% in USA or worldwide... Time will show.