By now you've read about Microsoft's proposed search deal with Yahoo. Yahoo estimates that the deal will increase its annual operating profit by US$500 million, and that it will reduce capital expenses by $275 million per year by no longer developing its own search techonlogy. Yahoo will also lay off an unspecified number of employees.
Here's some of the terms of the agreement, which is subject to regulatory approval.
- A 10-year term
- Microsoft gets exclusive license to Yahoo search techonlogies, and will be able to integrate those techonlogies into its own platform
- Microsoft's Bing will the exlcusive search and paid search platform for Yahoo's Web properties; Yahoo will use its existing technology for its display advertising business
- Yahoo's sales force will handle premium search advertising deals. Microsoft's AdCenter platform will replace Yahoo's Pamama platform, for self-service ad runs
- Both companies will have independent display advertising sales forces
- Yahoo will maintain control and ownership of its Web properties, even though they will be "powered by Bing."
- Microsoft will pay Yahoo through a revenue sharing agreement on traffic generated on Yahoo's Web properties annd affiliate sites
- Microsoft will pay traffic acquisition costs to Yahoo. The initial rate will be 88% of search revenue generated on Yahoo's Web properties during the first five years of the agreement
- The companies have placed restrictions on data sharing to protect consumer privacy
In my opinion, Microsoft is the big winner. Yahoo stock is down 10% as of the time that I wrote this.
As someone pointed out on the Yahoo Finance BBS, Microsoft's Ballmer has "picked up a 10-year open ended option to buy Yahoo—because no one else will ever be able to get between them because of the ongoing sales complexities." Shareholders are also crying bloody murder over Yahoo's use of the Bing search engine for nothing in return. Other commenters are peturbed that Microsoft didn't have to give Yahoo an upfront payment to make the deal happen, as many Yahoo investors had hoped.
Steven Ballmer is sitting pretty. Yahoo got Binged. Hard.