BING

Microsoft, Yahoo form Internet search partnership to ding Google

SAN FRANCISCO (AP) — Microsoft Corp. has finally roped Yahoo Inc. into an Internet search partnership, capping a convoluted pursuit that dragged on for years and setting the stage for them to make a joint 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, beefing up the software maker’s arsenal as it tries to better confront Google, which is by far the leader in online search and advertising.

Microsoft didn’t have to give Yahoo an upfront payment to make it happen, as many Yahoo investors had been counting on ever since Microsoft dangled $1 billion last summer in an attempt to forge a search partnership then.

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.

Now the extended reach Microsoft is gaining will let it 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 search responsibilities on Yahoo’s popular 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.”

Even with Yahoo’s help, Microsoft has its work cut out. Combined, Microsoft and Yahoo handle 28 percent of the Internet searches 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.

In return for turning the keys to its search engine over to Bing, Yahoo will keep 88 percent of the revenue from all ads that run alongside search requests on its site for the first five years of the deal. Yahoo also will have the right to sell search 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 $200 million on annual capital expenditures because it won’t have to invest as much 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. The companies first will give antitrust regulators time to review the possible effects on the Internet ad market. Then they will need time to stitch together their different technologies.

Shares of Yahoo plunged $2.08, or 12 percent, to $15.14, as investors expressed disappointment over the fact that the company won’t be getting an immediate windfall. Microsoft shares edged up 33 cents to $23.80.

“I think the market hasn’t figured out that there’s not much I can do with an upfront payment,” Bartz said in a Wednesday interview.

“It’s very clear that [in this deal] I get virtually all my revenue at no cost. That’s what’s important on an ongoing basis. A one-time upfront payment, what am I going to with it? Collect interest on it every year? That doesn’t help me with” Yahoo’s finances.

The alliance could give Yahoo a chance to recoup some of the money it 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 $22 billion, and the company, while profitable, is coming off a quarter in which revenue slid 13 percent.