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 user 2009-07-30 at 10:56:59 am Views: 71
  • #22470
    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

    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.
    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.

    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.

    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.