Microsoft & Yahoo ink 10-yr web search deal

The Microsoft-Yahoo pact is a measured step that represents a pragmatic division of duties between the two companies instead of the blockbuster deal Microsoft initiated last year, when it bid $47.5 billion to buy Yahoo.

That hostile offer was ultimately withdrawn by Microsoft, and its collapse and the uncertain aftermath for the Web company led to a management change and the replacement of its co-founder Jerry Yang by Carol Bartz, an outsider who is now Yahoo’s chief executive.

Under the pact, Microsoft will provide the underlying search technology on Yahoo’s popular Web sites. The deal provides a lift for Microsoft’s recent overhaul of its search engine, renamed Bing, which has won praise and favorable reviews, after years of falling further and further behind Google.

Running such a search system proves expensive, and Microsoft can now filter more searches through the Bing technology infrastructure. It expects to deliver better answers to search queries over time as well by learning from more peoples’ queries.

For Yahoo, the move furthers the strategy under Bartz to focus the company on its strengths as a producer of Web media sites, from finance to sports, as a marketer and a leader in on-line display advertising that accompanies published Web sites.

The terms of the 10-year agreement call for Microsoft to license some of Yahoo’s search technologies, and Yahoo will initially receive a lucrative 88 percent of search-generated ad revenue from Yahoo sites. The advertising work will be split. Yahoo will be the exclusive ad force for premium search advertisers who bargain to negotiate rates and deals. But the Microsoft Ad Centre automated search market will be used for smaller customers, whose prices for search advertising are set by the automated auction process.

Together, Microsoft, the No 3 provider of search, and Yahoo, No 2, will have about 28 per cent of search traffic in the United States. Even so, the partnership will still trail well behind Google, which holds about two-thirds of the market.