Microsoft and Yahoo! finally unite in search deal to battle Google

Microsoft and Yahoo! have agreed to merge their search technology and advertising operations, with Microsoft's Bing engine powering Yahoo!'s search and Yahoo! handling worldwide search advertising for both companies.

"Providing a viable alternative to advertisers, this deal will combine Yahoo! and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70 per cent of all search," the companies said in a joint release on Wednesday. (Google currently has about 70 per cent share of the search market, according to web analytics firm Compete.)

The 10-year deal gives Microsoft an exclusive licence to Yahoo!'s search engine technologies, which it will be able to incorporate into its own search platforms. The plan is for Microsoft's Bing to become the search engine for Yahoo!'s sites.

The companies said Yahoo! will "own the user experience" on its sites, which include its finance news, games, sports and OMG gossip sites.

Microsoft will pay Yahoo! 88 per cent of search revenue from traffic on Yahoo!'s own sites, with revenue guarantees worldwide for 18 months.

"This agreement gives us the scale and resources to create the future of search," Microsoft chief executive Steve Ballmer said in a statement. "Success in search requires both innovation and scale. With our new Bing search platform, we've created breakthrough innovation and features. This agreement with Yahoo! will provide the scale we need to deliver even more rapid advances in relevancy and usefulness."

Yahoo! and Microsoft's combined share of the search market today is around 30 per cent.

Yahoo! chief executive Carol Bartz, who took over from Jerry Yang in January following failed negotiations for a full-scale takeover of the company by Microsoft, said that the move will help Yahoo! focus on other areas. She also said the move has the full support of the company's board.

The companies said they expect the deal to complete in 2010, depending on regulatory approval, with full implementation following 24 months later.

Yahoo! estimates the deal will save $200m per year on capital expenditure and increase its annual cash flow by around $275m per year, with a $500m benefit to annual income overall. Microsoft has not commented on its financial expectations of the deal.

Original article: Microsoft and Yahoo agree search deal from ZDNet UK