Reports: Microsoft, Yahoo Reach Search Partnership; No Upfront Payment

Steve Ballmer, Carol Bartz

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).

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