Microsoft, Yahoo reach search deal

After years of courting, Microsoft Corp. has reached a deal with Yahoo Inc. to pool their resources on internet search, the lucrative business technology rival Google Inc. dominates.

Under terms of the agreement announced Wednesday, the two companies will pool their relative strengths in the search business, with Microsoft using its technology to power Yahoo searches while Yahoo puts its sales force to work to attract premium search advertisers.

The two companies said in a joint news release they hope the deal will help lead to faster, better and more relevant results for web users and advertisers when conducting online searches.

The 10-year deal will allow Microsoft to introduce its new search engine, called Bing, to more customers. In return, Yahoo will get to keep 88 per cent of the revenue from all search ad sales on its site for the first five years of the deal and gain the right to sell ads on some Microsoft sites.

Google had 65 per cent of the internet search traffic in the United States in June, according to the latest report from online tracker comScore. Yahoo and Microsoft sites were in second and third place in the search market, but trailed far behind with 19.6 per cent and 8.4 per cent in market share.

Microsoft had gained 0.4 per cent of the U.S. online search market share in the last month, however, while Yahoo's share dropped by 0.5 per cent.

Gartner Inc. analyst Neil MacDonald said the recent success of Bing helped make the deal happen.

"I think it put pressure on Yahoo, as well as Yahoo not being able to turn it around on its own," said MacDonald.

Yahoo CEO Carol Bartz said the deal is the beginning of a new era of innovation and development for the internet and will bring value to Yahoo.

"This deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences," she said.

Yahoo estimates the deal will boost annual profit by $500 million and save the company about $275 million on capital expenditures as it turns over some of the search technology costs to Microsoft.

Microsoft made a bid to buy Yahoo in the spring of 2008 for $47.5 billion U.S., but Yahoo's board of directors had insisted on a higher price and Microsoft refused. Yahoo then lost much of its bargaining power when Google backed out of an internet advertising partnership to avoid a challenge from the U.S. Justice Department, which had concerns about competition in advertising if the partnership was made.

Yahoo's chief executive at the time, Jerry Yang, then invited Microsoft to make another offer on his company, but Microsoft said it was no longer interested.

Bartz replaced Yang after he stepped down in December.