Yahoo! And Microsoft On Search Deal

Today is a great day for both Microsoft and Yahoo!. Yahoo! has signed a major search deal with Microsoft today. Together they announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies' premium search advertisers.

For Web users and advertisers, this deal will accelerate the pace and breadth of innovation by combining both companies' complementary strengths and search platforms into a market competitor with the scale to fuel sustained development in search and search advertising. Users will find what they care about faster and with more personal relevance. Microsoft's competitive search platforms will lead to more value for advertisers, better results for Web publishers, and increased innovation and efficiency across the Internet.

Under this agreement, Yahoo! will focus on its core business of providing consumers with great experiences with the world's favorite online destinations and Web products.

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 percent of search revenue generated on Yahoo!'s O&O sites during the first five years of the agreement; and
  • 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; and
• 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.

So what does this deal mean to you ?

Here’s the rundown:

• Better search: You’ll still find search boxes all across Yahoo!, but this deal will make the difference between a great Yahoo! search experience and an awesome one. Some of the biggest brains in the business work on Yahoo! Search, and they will continue to innovate to create a better search experience on Yahoo!. As a result of the deal, Microsoft, which has great technologists and deep pockets,will have the scale to bring users faster, more useful and more personally relevant search.
• Better everything else: With Microsoft powering Yahoo! Search, Yahoo! will be able to focus on the other things -– being the center of people’s lives online with properties like homepage, mail, finance, news, sports, entertainment, mobile, etc.
• Better competition: Competition equals innovation. But with one player dominating 70% of search, that field has been pretty lopsided. This transaction will create a healthy competitor that’ll keep everyone on their toes.

Below is a video of Carol Bartz talking about this deal.

Here is the joint website of Microsoft and Yahoo!.

Here are some of the pictures of this deal.