Microsoft, Yahoo agree search tie-up

30 July 2009

REDMOND, Washington: Microsoft and Yahoo have forged a ten-year global partnership covering various aspects of their online search operations, as the two companies seek to counteract Google's dominance of this area of the internet advertising market.

Google's pre-eminence in the web search arena has sent repercussions throughout the marketing and media industries, and is said to be based on its unique business model and clearer understanding of consumer behaviour than many of its initial rivals.

Figures from comScore, the online measurement firm, reported that Google held a 65% share of the US search market in June this year, more than double the combined total of Yahoo and Microsoft.

In an attempt to redress this situation – something industry commentators such as Sir Martin Sorrell regard as being essential – Microsoft launched an unsuccessful bid to acquire Yahoo in 2008.

Last month, the IT giant also unveiled Bing, its redesigned "decision engine", a move that was backed by a $100 million (€71m; £61m) marketing campaign.

Under the terms of the recently-announced deal, Bing will now deliver all of the search results generated via enquiries entered on Yahoo's homepage.

Microsoft will also be able to integrate Yahoo's search technology into its own systems, and will compensate its partner based on the amount of traffic that is delivered through its network of web properties.

For its part, Yahoo will take on a global sales role for the two firms' "premium search advertisers", and receive 88% of all search revenues produced by its assets for the first five years of the tie-up.

However, both parties will continue to operate their own display advertising and sales operations, and retain separate instant messaging, email and other web platforms.

Yahoo has predicted the alliance will add $500m to its annual operating profit, and contribute $275m in cost savings, as it will no longer be required to invest in developing its own search service.

A joint statement issued by the new collaborators said "advertisers no longer have to rely on one company that dominates more than 70% of all search."
Steve Ballmer, chief executive of Microsoft, further argued it will now be able to "create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company."

Neil MacDonald, an analyst at Gartner, said "the reason the deal happened now is the recent success of Bing. I think it put pressure on Yahoo, as well as Yahoo not being able to turn it around on its own."

The tie-up is likely to be subject to regulatory scrutiny by the US Government, which could delay the finalisation of the deal until early next year.

Data sourced from Yahoo/AFP; additional content by WARC staff