It just seems like yesterday that I was whining about getting some kind of a deal done already to end the ongoing drama of the Microsoft – Yahoo dance. Well, I know that the announcement of the deal finally happening has nothing to do with my level of frustration, I can only imagine that there are more than a few relieved folks on both sides of this sometime contentious negotiation.
The result is best described from the official press release
Yahoo! and Microsoft announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.
Using simple terms is good. In order for this thing to work they are going to need to keep things as simple as possible. The following not so veiled reference to Google cuts to the chase of what the goal of these two combining forces is really about
Providing a viable alternative to advertisers, this deal will combine Yahoo! and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70 percent of all search. With the addition of Yahoo!’s search volume, Microsoft will achieve the size and scale required to unleash competition and innovation in the market, for consumers as well as advertisers.
So the next few days and weeks will be filled with new details, emerging issues, opportunities and shots across the bow from Google and the new Microsoft / Yahoo partnership. Now that the this deal is finally completed it’s “Game on!” and things might actually start to get interesting. Or not.
Both company leaders, Microsoft’s Steve Ballmer and Yahoo’s Carol Bartz were beaming about the possibilities that the combined efforts can do for each company. They are very much in line with what we have been seeing and talking about for the past several months. Microsoft’s bing search engine is the crux of the deal from a search perspective and Yahoo is now free of trying to be the search engine that usually was met with the response about monthly search share of “I didn’t know they still had that much market share” Instead Yahoo now gets to focus on the rebranding it has been telling everyone about recently
“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,” said Yahoo! Chief Executive Officer Carol Bartz. “Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides. Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers. Finally, this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences.”
Somebody needs to get Ms. Bartz a boat apparently because these back and forth talks and references to boatloads of things are getting a bit overdone.
The press release outlines the key elements of the deal as well. While this is long it’s worth the read:
The term of the agreement is 10 years;
- Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing Web search platforms;
- Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology;
- Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process;
- Each company will maintain its own separate display advertising business and sales force;
- Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology;
- Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites;
- Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88 percent of search revenue generated on Yahoo!’s O&O sites during the first five years of the agreement; and
- Yahoo! will continue to syndicate its existing search affiliate partnerships
- Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country;
- At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million; and
- The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.
So there it is in all its glory. Today we announce the birth of what could be one of the biggest game changers in the brief history of the commercial Internet or one of the greatest train wrecks ever witnessed in business history. Only time will tell because now that the ink is on the paper it will be about execution. With full execution set at 24 months past regulatory approval there is going to be plenty of time to figure things out. Let’s hope they do.