Summary:

The blogosphere may be abuzz with rumors about *Yahoo* and *Microsoft* being in “hot and heavy” talks about a paid search deal, but during Y…

imageThe blogosphere may be abuzz with rumors about *Yahoo* and *Microsoft* being in “hot and heavy” talks about a paid search deal, but during Yahoo’s Q1 earnings call, CEO Carol Bartz made it clear — as has become the norm — that selling search to *Microsoft* wasn’t an option. Search is “absolutely critical to us,” Bartz said. “And it’s critical to our partners that they have access to a combined search and display platform.”

But what’s not clear is how critical Yahoo (NSDQ: YHOO) Search actually is to most advertisers, because search revenue on the company’s owned-and-operated (ONO) sites was down 3 percent year-over-year to $399 million.

The good: Search revs on ONO sites in the U.S. were actually up 3 percent. CFO Blake Jorgensen said query volume grew 11 percent; spending in verticals like CPG, tech, entertainment, and surprisingly, automotive, was up vs. the previous quarter.

The bad: ONO search revs were down 29 percent internationally (down 12 percent on a constant currency basis); spending by travel, retail and financial services advertisers was down. Revenue per search (RPS) also declined, though Bartz said the declines were “totally consistent” with the overall economy. “Search is the equivalent of online window shopping right now,” she said. “People are browsing around, and not clicking through to buy.”

Where to expect improvements: Definitely on the tech side. While Bartz rattled off a list of recent search upgrades (including Rich Ads in Search and search retargeting), she admitted that Yahoo wasn’t “easy enough to do business with.” She said the company would continue to invest in search tech and development, though declined to assign a specific dollar amount.

About those toolbar deals: Jorgensen addressed reports that the loss of default search deals with PC manufacturers like HP and Acer would force (or accelerate) a decline in search market share. “[The toolbar deals] are important, but we don’t think the economic cost is worth the tradeoff.”

Photo Credit: pbo31

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