Yahoo and Microsoft have revised their search partnership, giving Yahoo more flexibility to shape its own search results and changing how advertising is sold by both companies.
Yahoo and Microsoft have revised their search partnership, giving Yahoo more flexibility to shape its own search results and changing how advertising is sold by both companies.
The original 2009 agreement, forged after acquisition talks between the two companies crumbled, required Yahoo to use Microsoft’s Bing search engine and advertisements to power all desktop searches on Yahoo sites. Under a revised deal announced Thursday, Yahoo can generate its own search results and accompanying advertisements, as long as Microsoft ads and technology are used for “a majority” of Yahoo’s desktop searches.
Mobile searches have always been excluded from the partnership, but have become much more significant since the agreement was reached. Some analysts expect mobile searches to account for more than half of total U.S. search advertising this year.
The new deal also gives Microsoft’s sales staff the responsibility to sell Bing ads to large clients, while Yahoo’s sales force will continue to sell ads to advertisers on its own platform. Yahoo handled sales for both under the original agreement.
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Yahoo Chief Executive Marissa Mayer and Microsoft Chief Executive Satya Nadella in recent months “have worked closely together to establish a revised search agreement that allows us to enhance our user experience and innovate more in our search business,” Mayer said in a statement. “This renewed agreement opens up significant opportunities in our partnership that I’m very excited to explore.”
Mayer, a former Google executive, is said to have been trying to back out of the 10-year deal with Microsoft since arriving at the Sunnyvale, Calif., company in 2012. In January, Mayer said the company was exploring “a number of different avenues.”
The new agreement gives Yahoo room to experiment with its own search technology and potentially a test of Google’s ad platform without having to bear the cost of building a search engine from scratch, said Danny Sullivan, founding editor of Search Engine Land and a longtime search industry observer. “I think it’s a really good compromise all around. Yahoo probably couldn’t just go it alone.”
During the first half of the agreement, Bing has gained market share in the U.S. at the expense of Yahoo. When the agreement took effect in the U.S. in 2010, Yahoo sites accounted for 17.4 percent of U.S. desktop search engine queries, ahead of Bing’s 11.1 percent, according to comScore. Bing now accounts for 20.1 percent, and Yahoo 12.7 percent. Google’s share has remained relatively flat at 66 percent.
“At this point, Yahoo has declined to the degree that it’s not as valuable for [Microsoft] to have anyway,” Sullivan said. “But it’s better to have a happy Yahoo than a Yahoo that seems to be expressing concerns.”
The agreement reached its halfway point in February, allowing the companies to terminate the deal if its financial performance wasn’t meeting undisclosed targets. Months of negotiations since have put Mayer and Nadella in the position of determining the fate of an agreement inked by their predecessors.
The 2009 pact followed years of efforts by then-Microsoft CEO Steve Ballmer to buy the smaller rival. Instead of a tie-up, Ballmer and Yahoo’s Carol Bartz settled on search deal that would use the technology behind Microsoft’s new Bing search engine to power the results of searches on Yahoo products.
The deal gave Microsoft the rights to search technology pioneered by Yahoo, an early boost for Bing just months after Microsoft launched its re-branded search engine.
Microsoft guaranteed a certain level of revenue for Yahoo during the months following the transition to Bing in each country, and committed to paying Yahoo 88 percent of the revenue generated from searches on Yahoo sites. That rate rose to 90 percent this year, Yahoo said.
The search agreement accounted for 35 percent of Yahoo’s revenue in 2014.
“Our global partnership with Yahoo has benefited our shared customers over the past five years, and I look forward to building on what we’ve already accomplished together,” Nadella said in a statement.
Despite billions of dollars spent competing with search giant Google, Bing still isn’t turning a profit for Microsoft, analysts say. Microsoft executives have said Bing will break even in the company’s fiscal year beginning in July.