Yahoo, Microsoft Strike Internet-Search Advertising Agreement
July 29 (Bloomberg) -- Microsoft Corp. and Yahoo! Inc. agreed to collaborate on Internet search and online advertising, creating a united front to challenge Google Inc.
Under the agreement, Microsoft will get a 10-year license for Yahoo’s “core search technologies,” the companies said today in a statement. Microsoft’s Bing will become the algorithmic search and paid search platform for Yahoo sites.
Microsoft, the world’s largest software maker, is seeking more users for its Bing Internet search engine, which has about an eighth of Google’s market share in the U.S., according to research firm ComScore Inc. Yahoo spurned Microsoft’s offer to buy it outright last year for as much as $47.5 billion. Microsoft Chief Executive Officer Steve Ballmer has said an ad deal would help both companies, and Yahoo CEO Carol Bartz said in May that talks were under way.
“At the end of the day, it’s all very much about Google,” said David Garrity, an analyst at GVA Research LLC in New York, who doesn’t own shares of any of the companies. “Ballmer and Bartz are going to have to walk down the aisle together.”
Together, Yahoo and Microsoft hold about 28 percent of the U.S. search market, compared with Google’s 65 percent share, according to June data from researcher ComScore Inc. in Reston, Virginia. Separately, Yahoo had 19.6 percent and Microsoft, based in Redmond, Washington, had 8.4 percent.
While Google has maintained its lead, all three companies face a slowdown in online advertising as marketers pare budgets during the recession. The Internet-ad market may increase 10 percent this year, after expanding 22 percent in 2008, according to ZenithOptimedia Group in London.
Yahoo Savings
The potential savings for Sunnyvale, California-based Yahoo from a search deal may have been as much as $700 million, though it’s probably closer to $500 million, Bartz said at an investor conference in June. Previously, she said she would be willing to sell the search business for “boatloads of money.”
Bartz took the job at Yahoo in January, replacing co- founder Jerry Yang, who had rankled investors by rejecting Microsoft’s buyout offer. In lieu of a Microsoft deal, Yang pursued a failed ad partnership with Mountain View, California- based Google. That deal fell apart in November after the U.S. government threatened to challenge the agreement.
Ballmer has said repeatedly since last year that Microsoft would be interested in a partnership with Yahoo to help revive its online business.
Bing Boost
An agreement between the companies may attract regulatory scrutiny in the U.S. and Europe, said Colin Gillis, an analyst with Brigantine Advisors in New York.
“We would be more supportive of an agreement if not for our regulatory concerns,” Gillis said. “Yahoo search is in a decline that may not reverse.”
Microsoft released a new search engine in June called Bing to jump-start its search business. Bing’s features, such as grouping together product reviews and showing predictions for airfares, helped boost Microsoft’s market share last month, at Yahoo’s expense, not Google’s.
To bolster product development, Microsoft has gone after Yahoo’s search engineers. In December, the company lured former Yahoo engineering vice president Qi Lu to lead its online division. Two weeks earlier, Sean Suchter left Yahoo to head Microsoft’s Silicon Valley Search Technology Center.
Larry Heck, who oversaw a Yahoo lab that developed search and ad algorithms, joined Microsoft in February.
http://www.bloomberg.com/apps/news?pid=20601087&sid=amNH4..8OaTg
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