Yahoo! Inks Long-Expected Search Pact With Microsoft

Shares of Yahoo Inc. (YHOO) dived more than 11 percent by midday Wednesday when the company announced a long-expected search partnership with rival Microsoft Corp. (MSFT).

Microsoft’s stock price, on the other hand, was up, although just slightly.

Here’s the deal: Bing, Microsoft’s oddly named new search engine, will serve as Yahoo!’s default search function. The companies said that bodes well for online advertisers, who now have an alternative to the ubiquitous Google Inc. (GOOG). (Google’s shares, by the way, had fallen more than 1.5 percent by midday.)

Further, Microsoft gets exclusive licensing on Yahoo!’s search technology and, most of all, does not have to front a payment to Yahoo!. Instead, Microsoft will pay Yahoo! for traffic acquisition costs; initially, that amounts to 88 percent of search revenue generated on Yahoo!’s Web sites, over the first five years. The entire partnership is cemented for 10 years.

Now, recall what new Yahoo! CEO Carol Bartz said in late May: that she’d be willing to deal with Microsoft if non-specified “boatloads of money” were on the table. If only we knew whether those boatloads will amount to a canoe or Bill Gates’ yacht…

Yahoo! has fallen far from its glory days of the late ‘90s. It once was the search engine of choice but because of the tech bust, Google and poor management, it lost its footing along the way. Last year, Microsoft tried to buy Yahoo!, yet, Jerry Yang, a Yahoo! co-founder and then-CEO resisted and Microsoft backed away, to the frustration of board members, investors and industry observers. Yang then resigned and Yahoo!’s board appointed Carol Bartz to get the company back on track.


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