Yahoo and Microsoft on Wednesday announced a long-awaited search partnership. Microsoft will power Yahoo search and Yahoo will become the exclusive worldwide relationship sales force for both companies' premium search advertisers.
The 10-year deal combines both companies' strengths and search platforms into a market competitor with a greater scale to fuel development in search and search advertising. The companies are promising more relevant answers for consumers, more value for advertisers, better results for Web publishers, and even increased innovation and efficiency across the Internet.
Yahoo CEO Carol Bartz said the agreement comes with "boatloads of value" for Yahoo, its users, and the search industry. She believes it establishes the foundation for a new era of Internet innovation and development.
"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," Bartz said. "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."
The Nitty-Gritty Details
Under the terms of the deal, 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.
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 display advertising business and sales force.
"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," said Microsoft CEO Steve Ballmer. "Success in search requires both innovation and scale. With our new Bing search platform, we've created breakthrough innovation and features. This agreement with Yahoo will provide the scale we need to deliver even more rapid advances in relevancy and usefulness. Microsoft and Yahoo know there's so much more that search could be. This agreement gives us the scale and resources to create the future of search."
The Advertising Front
Microsoft will compensate Yahoo through a revenue-sharing agreement on traffic generated on Yahoo's network of owned and operated (O&O) and affiliate sites. Microsoft will also guarantee Yahoo's O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.
Analysts said Microsoft and Yahoo joining forces gives advertisers a viable alternative to Google. The deal will combine Yahoo and Microsoft search marketplaces so that advertisers can rely on a new platform that owns 30 percent of search. With the addition of Yahoo's search volume, Microsoft said it would achieve the size and scale required to breed competition and innovation in the market, for consumers as well as advertisers.
"A lot of advertisers and agencies are going to be interested in this new platform because it's going to create some scale," said Greg Sterling, principal analyst at Sterling Market Intelligence. "Google has a more formidable competitor now in the market and from an advertising perspective. On the consumer side, it doesn't have any more to be worried about today than it did yesterday."