(WEB HOST INDUSTRY REVIEW) — In an effort to wrestle search engine market share from Google (www.google.com), Yahoo! (www.yahoo.com) and Microsoft (www.microsoft.com) have announced a web search partnership agreement in which Microsoft will power Yahoo! search and Yahoo! will handle worldwide sales for both companies’ premium search advertisers.
According to Microsoft’s Wednesday announcement, this deal, subject to regulatory review, will accelerate the pace and breadth of innovation by playing on each company’s strength, adding value for web users and advertisers, giving them a viable alternative to Google, which dominates more than 70 percent of all searches.
“Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides,” Yahoo! chief executive officer Carol Bartz said in a statement. “Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers. Finally, this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences.”
Microsoft CEO Steve Ballmer said the agreement will provide its search engine, Bing, with the scale necessary to more effectively compete with Google, attracting more users and advertisers, leading to more relevant ads and search results. “Through this agreement with Yahoo!, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company,” Ballmer said.
The companies have established a website (www.choicevalueinnovation.com) providing consumers, advertisers and publishers with additional information about the agreement. Microsoft and Yahoo! expect the agreement to be closely reviewed by the industry and government regulators and are hopeful that it will close in early 2010.
Yahoo! chairman Roy Bostock said Wednesday’s deal fits into Yahoo!’s the long-term strategic goals as a leading online media company. “This is a significant opportunity for us,” Bostock said in a statement. “Microsoft is an industry innovator in search, and it is a great opportunity for us to focus our investments in other areas critical to our future.”
Under the terms of the 10 years agreement, Microsoft will gain an exclusive license to Yahoo!’s core search technologies, which Microsoft can integrate 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, however, Microsoft’s AdCenter platform will fulfill self-serve advertising for both companies, and all search ad prices will continue to be set by AdCenter’s automated auction process.
Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated and affiliate sites. Microsoft will pay traffic acquisition costs to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s sites during the first five years of the agreement.
Last year, Yahoo! failed to negotiate a $47 billion acquisition with Microsoft, causing Yahoo!’s market value to fall by more than $20 billion. Added to Yahoo!’s troubles was a failed partnership with AOL (www.aol.com) and an advertising revenue-sharing deal Google (www.google.com), which dissolved in late 2008, which factored into co-Founder Jerry Yang’s decision to resign as CEO in favor of experienced technology executive Carol Bartz.
According to Dow Jones reports, Wall Street saw Wednesday’s deal as a threat to Google whose shares fell roughly 1 percent. This deal, however, has been met with much skepticism from analysts such as Endpoint Technologies Associates (www.ndpta.com) analyst Roger Kay, who not only doubts the deal will strike a significant blow to Google, but also that Yahoo! has gotten a raw deal, as its shares fell 11.5 percent. Kay said the deal was a “[b]ig victory for Microsoft, which gets what it wanted for no up-front payment… The earlier deal would have been much better for Yahoo. No up-front payment is vastly different from $47 billion in the bank.”
