After a failed merger attempt last year and following months of back and forth negotiations, Microsoft and Yahoo have officially announced a 10-year search deal to better compete with leader Google. Under the agreement, Microsoft’s Bing search engine would now be the exclusive search provider for Yahoo’s sites and in exchange the latter will sell both its own and Microsoft’s search ads using the AdCenter platform.
Yahoo will still own the user experience on its properties and should get 88 percent of search revenue created by its sites during the first five years. For its part, Microsoft will guarantee a certain level of search revenue for 18 months. Although no upfront payment will be made, Yahoo estimates the agreement will provide about $500 million in annual operating income and capital expenditure savings of about $200 million after the first two years. In addition, the deal is expected to generate annual operating cash flow of about $275 million.
The road to a deal has been a long one and full implementation is still not expected to occur until at least 24 months following regulatory approval. Together the companies would have nearly 30 percent of the search market compared with Google’s estimated 60 percent share.