Wednesday July 29, 10:27 PM
Yahoo!, Microsoft in Web search, ad partnership
By Chris Lefkow
WASHINGTON (AFP) - Yahoo (NASDAQ: YHOO - news) ! and Microsoft (NASDAQ: MSFT - news) , after months of negotiations, unveiled a 10-year Web search and advertising partnership on Wednesday that sets the stage for a joint offensive against Internet titan Google (NASDAQ: GOOG - news) .
Under the no-cash deal, Yahoo! will use Microsoft's new Bing search engine on its own sites while Yahoo! will provide the exclusive global sales force for the companies' premium search advertisers.
The agreement between the Internet portal and software giant, which will be subject to review by US anti-trust regulators, is expected to close in early 2010, the companies said.
It is restricted to Internet search and related advertising revenue, while the pair would retain full autonomy over other properties and products such as email, instant messaging and display advertising.
The limited scope of the agreement appeared to disappoint some investors and Yahoo! shares shed 12.08 percent on Wall Street to close at 15.14 dollars.
Microsoft gained 1.41 percent to finish at 23.80 dollars while Google shed 0.82 percent to close at 436.24 dollars.
Under the agreement, Microsoft will acquire an exclusive 10-year license to Yahoo!'s core search technologies and will be able to integrate them into its existing Web search platforms.
"This agreement comes with boatloads of value for Yahoo!, our users, and the industry," said Carol Bartz, who replaced co-founder Jerry Yang as Yahoo! chief executive after he rejected a 47.5-billion-dollar takeover bid from Microsoft last year.
Bartz described the deal as a "game-changer" while Microsoft chief executive Steve Ballmer said it was a "win-win agreement both for Microsoft and Yahoo!"
They said the transition to Bing on Yahoo! properties is expected take between three to six months after the closing of the deal in early 2010.
Ballmer said Microsoft expected transition costs of "a few hundred million dollars in the first couple of years."
Bartz said a number of Yahoo! search employees will relocate to the Redmond, Washington-based Microsoft and "there would be some redundancies" at Sunnyvale, California-based Yahoo! although she declined to provide a number.
Yahoo! said it stood to gain about 500 million dollars in annual operating income and 200 million dollars in capital expenditure savings from the deal.
The company also estimated the agreement would provide it with a 275-million-dollar benefit to annual operating cash flow.
Bartz, in a blog post, said Yahoo! will "focus on the things we do best -- being the center of people's lives online with properties like our homepage, mail, finance, news, sports, entertainment, mobile, etc."
Ballmer said the deal will enable Bing to better compete against Google, which has a 65 percent share of the lucrative search market according to Comscore, followed by Yahoo! with 19.6 percent and Microsoft with 8.4 percent.
"Through this agreement with Yahoo!, we will create more innovation in search, better value for advertisers, and real consumer choice in a market currently dominated by a single company," Ballmer said.
Analyst Rob Enderle of Silicon Valley's Enderle Group said the partnership already dubbed "MicroHoo" could emerge as a choice for advertisers.
"At eight percent you're not really a player," Enderle said. "You step up to around 30 percent and suddenly you're an alternative. There are a lot of people who would just as soon not do business with Google."
Silicon Valley Insider's Henry Blodget, a former Merrill Lynch (NYSE: MER - news) analyst, cautioned that the deal is "tremendously complex" and "has the potential to be a logistical and regulatory nightmare for both companies."
Danny Sullivan, editor-in-chief of SearchEngineLand.com, a website which covers the search engine industry, said there was an "incredible upside" to the deal for Microsoft but it left Yahoo!'s future "very clouded."
"I think it's a bargain for Microsoft," he said. "Yahoo!'s giving up on search and they're not getting any big payment to do so."
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