The pending Microsoft / Yahoo deal is big news for search. It will make Microsoft the 2nd largest company in the world, and a much stronger contender against Google.
What’s the deal?
In the 10-year deal, Microsoft’s Bing, which was launched just two months ago and is already gaining market share, will power search queries on Yahoo’s sites. Yahoo’s sales force will be responsible for selling premium search ads to big buyers for both companies.
Microsoft will initially pay Yahoo 88% of the search revenue generated through Yahoo’s sites – at least for the first 5 years. However, it will be another 2 and a half years before we see it go into effect – the companies still have to go through antitrust and privacy inspections.
The deal may involve redundancies on Yahoo’s side, despite Microsoft being required to hire at least 400 Yahoo engineers and pay them market-competitive compensation packages.
Yahoo says...
According to Yahoo’s website, they estimate the deal will ‘boost its annual operating income by about $500 million and yield capital expenditure savings of $200 million’. Yahoo also expects the deal to boost annual operating cash flow by about $275 million.
However, due to a lack of an anticipated upfront payment from Microsoft, initial share prices fell for Yahoo – despite analysts speculating that the partnership is a good deal, and perhaps the only way that the two companies, struggling to battle Google, can finally start gaining ground on the search giant.
There are, of course, limits to the deal. Yahoo has termination clauses involved if certain revenues fall below specific percentages; and the deal doesn’t include any other of the companies web properties such as instant messaging, email or display advertising.
Is this good news for search?
Here at atom42, we agree with Matt Cutts, who said that competition within the search landscape can only be a good thing. It is likely to help push both Microhoo and Google to provide better results and more helpful search features in the future.
