microsoft and yahoo against google

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By Alexei Oreskovic and Bill Rigby

SAN FRANCISCO/SEATTLE (Reuters) – Microsoft Corp and Yahoo Inc inked a 10-year Web search deal to challenge market leader Google Inc but stopped short of combining their display advertising businesses.

The long-expected deal effectively means Microsoft’s new Bing search engine will be combined with Yahoo’s experience attracting advertisers to pose the first serious threat to Google, if the companies get regulatory approval and can make the partnership work.

Yahoo shares fell 11 percent as some investors were disappointed by the limited scope of the deal, which did not include upfront payments for Yahoo, which could have been $1.5 billion or more, according to a Sanford Bernstein research report last week.

“Microsoft will be able to report a greater share in terms of search… And Yahoo doesn’t have to spend any more money on search,” said Barry Diller, chief executive of IAC/InterActiveCorp, which owns rival search engine Ask.com.

Shares of Microsoft were flat, while Google shares fell 1.2 percent.

Microsoft and Yahoo still face antitrust and privacy issues and likely opposition from Google, which dropped its plans for an advertising partnership with Yahoo last year under pressure from the U.S. Justice Department.

The companies said they expect the deal to be “closely reviewed” by regulators, but were “hopeful” it can close in early 2010.

Google said on Wednesday only that it was “interested” in the Microsoft/Yahoo partnership, while the chairman of the U.S. Senate antitrust panel said the deal warrants “careful scrutiny.”

The deal culminates a lengthy, and at times contentious, dance between the two companies. They have been in on-and-off-again talks on a search partnership since Yahoo rebuffed Microsoft’s $47.5 billion takeover bid last year.

Microsoft Chief Executive Steve Ballmer clashed last year with former Yahoo CEO Jerry Yang, who was strongly opposed to an all-out acquisition. Relations between the two companies improved under new Yahoo CEO Carol Bartz, who took the reins in January and started to shake up Yahoo’s top management.

Ballmer and Bartz met “three or four times” over the past six months as they hammered out a deal, according to Ballmer.

HOW THE DEAL WORKS

Under the deal announced on Wednesday, Microsoft’s Bing search engine will power search queries on Yahoo’s sites. Yahoo’s sales force will be responsible for selling premium advertising based on search terms for both companies.

Microsoft’s AdCenter technology will serve the standard sponsored links that appear alongside search results.

While Yahoo CEO Bartz had previously said that any deal would require a partner with “boatloads of money,” she said on Wednesday that the agreement provided “boatloads of value”, saying the revenue share agreement in the Microsoft deal was more valuable to Yahoo than a one-time payment.  Continued…

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