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Summary:

After three years of on and off talks, Microsoft (NSDQ: MSFT) has finally reached a search ad partnership with Yahoo (NSDQ: YHOO). AdAge rep…

Steve Ballmer, Carol Bartz
photo: AP Images

After three years of on and off talks, Microsoft (NSDQ: MSFT) has finally reached a search ad partnership with Yahoo (NSDQ: YHOO). AdAge reported the news this afternoon. Kara Swisher at AllThingsD says the deal will be announced within the next 24 hours. The WSJ clarifies that neither side has approved the deal, although it says a deal could come as soon as Wednesday. Microsoft and Yahoo spokesmen would not comment this evening.

The basic reported details:

– Yahoo will not receive an upfront payment
— Bing will become the default search engine on Yahoo, according to AdAge. Bing therefore would be able to claim 28 percent of the search advertising market, according to the latest comScore (NSDQ: SCOR) figures.
— Yahoo’s search engine will use the Bing brand
— Yahoo will “take on exclusive representation of Bing inventory”
— The WSJ says that Yahoo will also sell ads on some other unspecified Microsoft sites
— Microsoft’s AdCenter platform, however, will be the underlying sales technology platform
— The companies expect some interest from the Justice Department, which was reportedly an earlier sticking point for Yahoo’s board
— Microsoft may ask for the Justice Department’s approval, before going forward with the deal. The Justice Department, of course, did not okay Yahoo’s search advertising partnership with Google (NSDQ: GOOG) last autumn.

Points to note: Most earlier reports said that Yahoo would receive an upfront payment in the billions for agreeing to a search deal with Microsoft, so it will be worth seeing what revenue guarantees Microsoft has agreed to in order to make up for that. After all, Yahoo CEO Carol Bartz has said that she would only agree to a deal if there were “boatloads of money” involved. There also does not appear to be a display ad component to the deal, which had previously been mentioned as a possibility.

Bartz had said that by outsourcing the company’s search business to Microsoft, Yahoo would be able to save between $500 and $700 million a year. However, by still staying in the search advertising business, the savings are expected to be lower, although Yahoo will likely be able to cut down on both data center and employee costs (Already, a steady stream of its top search engineers had left the company for Microsoft).

  1. The comScore market share data is nonsense, as it only reflects page views (number of queries performed), a meaningless statistic given how many Google, Yahoo!, and Microsoft queries result in people visiting those services' own content.

    Google presently controls about 1/3 of the search market based on people who actually visit google.com versus people who visit search.yahoo.com and bing.com. Combining the numbers for Yahoo! and Bing won't make any sense either, as this move will drive some of Yahoo!'s visitors to use other search services (mostly Google).

    History shows us that folding a major search brand into another destroys market share equity in a relatively brief period of time. This move thus marks a movement toward failure for both Microsoft and Yahoo!, as neither is in a position to poach much traffic from Google.

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  2. Joseph Tartakoff Saturday, August 1, 2009

    It would be interesting to learn how many people are going to Yahoo.com specifically to search, rather than searching on Yahoo.com because they are already on one of Yahoo's properties — since that would determine how much search share could actually potentially be lost.

    — Joe Tartakoff, paidContent.org

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