Microsoft and Yahoo Finally Announce Deal

The white whale has been killed, the leprechaun has been captured, the holy grail has been found -- Microsoft and Yahoo have finally reached a partnership deal. I'll let you ponder as to what those things all have in common.

In case you hadn't already heard the news, Microsoft and Yahoo have finally agreed on a deal to combine forces. Which I'm hoping will form some kind of mega search robot. Now that the deal is done, here's what Steve Ballmer has to say about the impact of it,

"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 details of the deal are quite interesting. The first thing to note is that this is a partnership, not a buyout. So there's quite a bit of give and take going on. I think the biggest aspect of the deal to keep an eye on is Microsoft is implementing Bing's search algorithms on Yahoo's sites. Will there be an improvement in search, or a decline? When Microsoft gets it going, we're sure to find out.

What are your thoughts now that Microsoft and Yahoo have come to an agreement? Do the terms of the deal seem fair in keeping with the definition of a 'partnership'?

Key Terms as highlighted in the announcement:

- 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.