MICROSOFT & YAHOO AGREE ON INTERNET-SEARCH-ENGINE DEAL

[Anonymous]

http://news.yahoo.com/s/ap/us_microsoft_yahoo
MICROSOFT & YAHOO AGREE ON INTERNET-SEARCH-ENGINE DEAL
SAN
FRANCISCO – Microsoft Corp. has finally roped Yahoo Inc. into an
Internet search partnership, capping a convoluted pursuit that dragged
on for years and finally setting the stage for the rivals to make an
all-out assault against the dominance of Google Inc.
The 10-year
deal announced Wednesday gives Microsoft access to the Internet’s
second-largest search engine audience, adding a potentially potent
weapon to the software maker’s Internet arsenal as it tries to better
confront Google, the leader in online search and advertising.Google
tried to stop Yahoo from falling into Microsoft’s camp. Last year it
formed its own proposed search advertising deal with Yahoo, only to be
forced to retreat from that alliance after U.S. antitrust officials
threatened to sue.The extended reach will allow Microsoft to introduce
its recently upgraded search engine, called Bing, to more people. The
Redmond, Wash.-based software maker believes Bing is just as good, if
not better, than Google’s search engine. Taking over the search
responsibilities on Yahoo’s highly trafficked site gives Microsoft a
better chance to convert Web surfers who had been using Google by force
of habit.”Microsoft and Yahoo know there’s so much more that search
could be,” said Microsoft Chief Executive Steve Ballmer. “This
agreement gives us the scale and resources to create the future of
search.”

In return for turning over the keys to its search
engine to Bing and promoting it, Yahoo will get to keep 88 percent of
the revenue from all search ad sales on its site for the first five
years of the deal, and will have the right to sell ads on some
Microsoft sites.Yahoo estimated the deal will boost its annual
operating profit by $500 million and save the Sunnyvale, Calif.-based
company about $275 million on capital expenditures a year because it
won’t have to invest in its own search technology. An unspecified
number of Yahoo engineers will lose their jobs as the company scales
back, Yahoo Chief Executive Carol Bartz told analysts in a Wednesday
conference call.The deal isn’t expected to close until early next year,
and then it could take another two years before all the pieces of the
partnership are in place worldwide. The companies first will give
antitrust regulators time to review the proposed partnership’s effects
on the Internet ad market and then it will take time to stitch together
their different technologies.

In premarket activity, shares of
Yahoo slid $1.19, or 6.9 percent, to $16.03, as investors digested the
fact that the company is not getting an upfront payment from Microsoft,
as had long been rumored. Microsoft shares advanced 13 cents to
$23.60.The alliance could give Yahoo a chance to recoup some of the
money squandered in May 2008, when it turned down a chance to sell the
entire company to Microsoft for $47.5 billion.Yahoo’s market value
currently stands at about $24 billion. Yahoo just came off a tough
quarter in search advertising, with its revenue in that niche falling
15 percent in the April-June period.The two rivals began talking about
a possible partnership as far back as 2005 before Microsoft intensified
the courtship with last year’s attempt to buy Yahoo.It took Bartz just
six months to strike a deal with Microsoft — something that neither of
her predecessors, Terry Semel and Yahoo co-founder Jerry Yang, seemed
interested in doing.

Shortly after her arrival, Bartz made it
clear she was willing to farm out Yahoo’s search engine for “boatloads
of money” as long as she as thought the company would still receive
adequate information about its users’ interests. Although Yahoo won’t
get any immediate cash, Bartz predicted the deal will still be a boon
for the company.”This agreement comes with boatloads of value for
Yahoo, our users, and the industry, and I believe it establishes the
foundation for a new era of Internet innovation and development,” Bartz
said Wednesday.Under the agreement, Yahoo will have limited access to
the data on users’ searches — which yield insights that can be used to
pick out ads more likely to pique a person’s interest. The value of
that information is why Microsoft wants to process more search
requests.Like Yahoo, Microsoft has invested billions in its search
technology during the past decade, yet remained a distant third in
market share while its online losses piled up. The company’s Internet
services division lost $2.3 billion in the fiscal year ending in June,
nearly doubling from the previous year.

Microsoft is counting on Bing, unveiled in early June, to turn things around.
Bing
has been getting mostly positive reviews and picking up slightly more
traffic with the help of a $100 million marketing campaign. Analysts
believe Bing’s successful debut pushed Microsoft to reopen negotiations
so it could expose its search engine improvements to a wider audience
more quickly.”The reason the deal happened now is the recent success of
Bing. I think it put pressure on Yahoo, as well as Yahoo not being able
to turn it around on its own,” said Gartner Inc. analyst Neil MacDonald.

Even
with Yahoo’s help, Microsoft still has its work cut out. Combined,
Microsoft and Yahoo have a 28 percent share of the Internet search
market in the United States, well behind Google’s 65 percent, according
to online measurement firm comScore Inc. Google is even more dominant
in the rest of the world, with a global share of 67 percent compared to
a combined 11 percent for Microsoft and Yahoo.Microsoft and Yahoo are
bracing for antitrust scrutiny into whether the combination would have
an adverse effect on competition in the online ad market.The U.S.
Justice Department spent five months dissecting a proposed search
advertising partnership between Google and Yahoo before concluding that
it would give Google too much control over the market.Microsoft used
its lobbying muscle to spearhead the campaign against Google teaming up
with Yahoo, so it wouldn’t be a surprise if Google turned the tables.

Under
the Obama administration, the Justice Department is promising to pore
over technology deals far more rigorously than it did when the proposed
Google-Yahoo partnership came up.Ballmer expects the support of online
advertisers and Web publishers who would like a stronger rival to
Google to eclipse any objections that Google might raise.”We think this
is one of these cases where the coming together will produce more
effective market competition, not less,” he told analysts in a Tuesday
conference call.Just getting Yahoo to succumb to its latest advance
represents a coup for Microsoft and the boisterous Ballmer, who was
rebuffed for so long.Microsoft is doubling down on Internet search at
the same time Google is attacking Microsoft’s bread-and-butter business
of making software for personal computers.

Google is working on
a free operating system for inexpensive personal computers in a move
that could threaten Microsoft’s ubiquitous Windows franchise. If it
gains traction, Google’s alternative, called Chrome OS, could divert
some revenue from Microsoft while the software maker is trying to grab
more of the money pouring into search advertising.Chrome OS, though,
isn’t supposed to hit the market until the second half of next year.
That means Microsoft could get a head start on Google in the duel to
steal each other’s financial thunder.

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July 30, 2009 at 10:56 AM