Yahoo And Microsoft: The Facts

This post is a part of the Yahoo! gets Microsoftified series – where we cover the facts, points of view, and details of the Microsoft-Yahoo! deal. To see all posts of the series, click here. More posts are coming soon!

This morning, Yahoo and Microsoft announced a 10-year search deal that will see the two companies join forces to take on Google. Basically, Microsoft’s technology will power Yahoo’s search results, while Yahoo will be charged with selling ads for both companies’ search sites. Here are the facts:

Basics:

• Yahoo is outsourcing search on its web properties to Microsoft
• Microsoft is providing the technology (Bing), while Yahoo will deliver the worldwide sales force for both companies’ premium search advertisers
• Ad sales will be handled by Microsoft’s AdCenter sales tool
• Microsoft is getting the reach (scale) that Yahoo has with its web properties while Yahoo is getting superior technology and the ability to save by not having a dedicated search team
• The companies will share resources and combine engineering efforts
• Combined, the two companies make up 30% of the search market, compared to Google – which still controls more than twice that amount
• The deal is for a time period of 10 years

Financials:

• There is no upfront payment of any kind exchanging hands (as previous negotiations would contradict)
• The deal will increase Yahoo’s profitability (less expensive search). It will not have an affect on revenue
• Once fully in place, Yahoo expects the deal to boost its annual operating income by about $500 million, reduce capital expenditures by $200 million, and increase operating cash flow roughly by $275 million
• Majority of search advertising revenue generated on Yahoo will be awarded to the company. Microsoft has also offered revenue guarantees to Yahoo
• As of market close on Wednesday, July 29, 2009, the stock price of each company is as follows:
• Yahoo: -2.08 points (-12.09%). $15.14 per share
• Microsoft: +0.33 points (+1.41%). $23.80 per share

Privacy Concerns

• Aspiring to stave off privacy concerns, the two companies noted that “the agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies.”

Other notes

• The deal must still pass regulatory requirements
• Two years after regulatory approval, the companies expect to have the partnership up and running in full force
• The collaboration is strictly limited to search, with both companies noting that “The agreement does not cover each company’s Web properties and products, e-mail, instant messaging, display advertising, or any other aspect of the companies’ businesses,” they said. “In those areas, the companies will continue to compete vigorously.”

Posted in Bing, Business, Decisions, Featured, Industry News, Microsoft, Search, Yahoo!