The on again, off again business relationship between Microsoft and Yahoo appears to be on again once more, perhaps finally heading to some sort of completion by early next year. No, unlike as had been proposed in the past, the two companies will not merge. Instead, Bing will become the search engine for Yahoo (as it is for Microsoft) while Yahoo Publisher Network ads will appear on search requests on its site while also retaining the right to sell ads on some Microsoft sites.
Microsoft Wins Big
Microsoft clearly comes out ahead in this ten year business agreement as the technology company doesn’t have to fork over any cash to complete the deal as Yahoo once hoped would happen. Even though it has only been in operation for two months, Bing has received high marks as a search engine and is considered to be better than Yahoo Search which currently controls 20% of the US search market, well behind first place Google Search who has 65%. By replacing Yahoo Search, Bing will suddenly have 28% of the market, positioning itself to chip away at Google market share.
Since it got started, Bing has been grabbing market share from Yahoo, not Google. At the same time, Google’s share has been increasing at the expense of Yahoo, not Bing. Getting squeezed from both sides, Yahoo probably figured that Bing would one day eventually pass Yahoo Search so why not monetize the situation in exchange for getting out?
Surrender, Yahoo Search!
In exchange for surrendering to Microsoft, Yahoo will get to keep 88% of revenue generated from all ads that run alongside search requests on its website for the first five years of the deal. In addition, Yahoo will have the right to sell search ads on as yet to be determined Microsoft sites. If Microsoft is smart, they’ll turn over the ad space for the unpopular Windows Vista microsite to Yahoo, the worst operating system in the world! Just kidding.
Yahoo has been rocked by bad management decisions and an unfortunate economy, turning down a bid a few years back to sell itself to Microsoft for $47.5 billion. With a current value of $22 billion, Yahoo is struggling to find its place on the internet, steadily falling behind Google and struggling with its stock which is trading at just over $15 a share. You have to wonder if some Yahoo heads will roll over the deal too as Bing absorbs what was once the number two search engine.
Sources: TechCrunch, Microsoft, Yahoo