Microsoft and Yahoo! confirm 10-year ad deal

A new 10 year partnership will see Microsoft’s Bing search engine power Yahoo! search while Yahoo! will provide the worldwide sales force for both companies’ premium search advertising.

Under the terms of the deal, Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and have the ability to integrate Yahoo! search technologies into its existing search platforms.

While Yahoo! will sell premium search advertising, Microsoft’s AdCenter platform will handle self-serve advertising for both companies.

Each company will maintain its own separate display advertising business and sales force.

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% 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.

In a statement, Yahoo! said that it estimates that – within 24 months of regulatory agreement – the 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”.

Carol Bartz, Yahoo! CEO, said: “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.

“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.”

Steve Ballmer, Microsoft CEO, said the agreement will provide Microsoft’s search engine, Bing, the scale necessary to more effectively compete, attracting more users and advertisers, which in turn will lead to more relevant ads and search results.

“Through this agreement with Yahoo!, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company,” said Ballmer.

“Success in search requires both innovation and scale. With our new Bing search platform, we’ve created breakthrough innovation and features. This agreement with Yahoo! will provide the scale we need to deliver even more rapid advances in relevancy and usefulness. Microsoft and Yahoo! know there’s so much more that search could be. This agreement gives us the scale and resources to create the future of search.”

The deal does not cover web properties and products, email, instant messaging, display advertising, or any other aspect of their separate businesses.