Microsoft and Yahoo have confirmed a deal overnight which will see Microsoft power Yahoo! search while Yahoo! will become the exclusive sales force for both companies’ search advertisers.
The deal comes a little over a year since Yahoo! rejected a $44.6 billion from Microsoft to buy the pioneering search engine.
Since then Yahoo! has already laid off over 1000 workers and founder Jerry Yang stepped down from the CEO position. His replacement, Carol Bartz, has already confirmed that more lay-offs are on the way although the number is yet to be determined.
“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,” said Bartz " this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences.”
Yahoo! and Microsoft are currently tied up in 50-50 joint ventures with Australia's leading commercial television networks 7 and 9 respectively.
Yahoo!7 search, currently holding 3% of the Australian search market, will now be powered by Microsoft's Bing search technology. Bing search features on the ninemsn homepage and currently equates to approximately 4% of Australian searches in a market still dominated by Google, which holds over 90% of the Australian market (Hitwise).
So what will happen in Australia? Not much. This deal is really only about search which is only a small portion of the joint ventures partnerships. The focus for both ninemsn and Yahoo!7 will continue to be on content with display advertising teams remaining separate. You may see 'powered by Bing' on Yahoo!7 properties but will be little difference to the end user.
There may be some movement of Australian jobs with the ninemsn search marketing sales potentially moving to Yahoo!7, however both companies were not immediately available for comment.
The key terms of the agreement announced 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.
