Microsoft, Yahoo Deal May Be Examined by EU, Says Report

Microsoft may be finding its partnership agreement with Yahoo under antitrust scrutiny on both sides of the Atlantic.

"There are ongoing informal discussions between the European Commission and Microsoft and Yahoo on their search engine partnership," an unnamed source told Reuters on Sept. 15, but declined to elaborate further.

Under the original terms of the 10-year agreement between the two companies, inked on July 29, Bing will power search on Yahoo’s sites, while Yahoo will become the exclusive worldwide relationship sales force for both companies’ search advertisers. Before the deal was announced, Microsoft and Yahoo held a respective 8.4 percent and 19.6 percent of the U.S. search-engine market; with the agreement in place, Bing’s roughly 30 percent market-share would theoretically present a stronger challenge to Google’s 65 percent share.

Microsoft hopes that the extra data flowing to Bing from Yahoo’s sites will initiate something of a virtuous cycle, with the added information leading to more relevant ads and search results.

In addition to possible EU examination, the Microsoft and Yahoo partnership is in the midst of a deeper probe by the U.S. Department of Justice, which is examining the deal to ensure it meets antitrust regulations.

Microsoft confirmed in an e-mailed statement to eWEEK on Sept. 11 that the Justice Department had indeed been asking questions about certain aspects of the partnership, but was predictably reluctant to share further details.

"As expected, Microsoft and Yahoo have received requests for additional information about the agreement," Jack Evans, a spokesperson with Microsoft, said in the statement. "As we said when the agreement was announced, we anticipated that this deal will be closely reviewed and we are hopeful it will be approved by early 2010."

Yahoo has an escape clause in the deal, allowing it to break the partnership if Google’s RPS (revenue-per-search) query rate is higher than Microsoft’s and Yahoo’s combined RPS rates. Yahoo has also indicated that it will continue to compete with Microsoft in application arenas such as email.

Microsoft spent the summer already wrestling with European antitrust regulators over its upcoming Windows 7 operating system. Originally, Microsoft planned on shipping a separate European Union version, Windows 7 E, that lacked Internet Explorer 8, in order to counter regulator complaints that bundling the browser with the operating system would violate antitrust laws.

Then Microsoft decided in August to release the same version of Windows 7 in the EU as in the rest of the world. However, the strategy carries some risk.

"We recognize that there are still several steps ahead in the [EU] commission’s review of our proposal and that we are not done," Dave Heiner, vice president and deputy general counsel for Microsoft, wrote in a statement at the time. "We’ve been open both with the commission and with our customers and partners that if the ballot-screen proposal is not accepted for some reason, then we will have to consider alternative paths, including the reintroduction of a Windows 7 EW version in Europe."

In July, a Bloomberg report suggested that Microsoft was pushing the EU to wrap up its long-running antitrust investigations before EU Competition Commissioner Neelie Kroes steps down from office at the end of 2009. Microsoft CEO Steve Ballmer has met with Kroes on previous occasions in attempts to settle issues between his company and the EU.