Microsoft, Yahoo Still Search Competitors, According to Yahoo

Despite a 10-year agreement that has Microsoft's Bing powering search on Yahoo's sites, Yahoo evidently still sees its online partner as a competitor. In an Aug. 24 press conference, Yahoo executives revealed several new upgrades to its key products, while also suggesting that Yahoo will continue to duel heartily against both Microsoft and Google to pull eyeballs to its sites.   

"The agreement calls for Microsoft to supply us with algorithmic search results, images and video," Prabhakar Raghavan, senior vice president of Yahoo's Labs and Search Strategy, said during the press conference. "We will be free to innovate on top of that layer."

Raghavan suggested that Yahoo will no longer fight what he termed "the megawatt war," with search engines chewing through billions of Web pages in order to spit results back to the end-user, and will instead focus on providing a front-end experience different from that offered by either Microsoft or Google.

To that end, Yahoo plans on integrating several new features into its user experience, including upgrades to Yahoo Search, Yahoo Messenger and Yahoo Mail. The evident hope is that those front-end applications will compel users to choose Yahoo over Bing or Google, whose homepages emphasize search over applications such as email.  

Besides a new three-column layout that mirrors the Yahoo homepage, Yahoo's new search page integrates results from YouTube, Yelp and other sites; searching for people will pull results from Facebook, LinkedIn, Twitter, FriendFeed and other social-networking sites. Despite the Microsoft deal, Yahoo signaled during the press conference that it fully intends to continue devoting resources to its front-end search experience.

Yahoo's insistence that it remains competitive comes after weeks of speculation that the Microsoft agreement would mean the end of Yahoo as a viable search competitor. Analysts have also suggested that, despite the combined scale of Microsoft-Yahoo search, the companies could still have a hard time presenting a viable threat to Google's market share.

Under the terms of the agreement, officially inked on July 29, Microsoft Bing will power Yahoo's search engine while Yahoo takes on worldwide sales duties for both companies' search advertisers. The deal was widely seen as an attempt by both companies to counter the rising dominance of Google, which holds a 65 percent share of the U.S. search-engine market.

Combined, Bing and Yahoo will hold close to 30 percent of that market. Microsoft has suggested that, by incorporating Yahoo's user base, Bing will now be able to utilize more user-generated data in refining search results. One key part of the deal had Yahoo "owning" the user experience on its sites, including search - an aspect the company has seized upon to suggest that it remains competitive.

Yahoo also has a potential backdoor escape from the Microsoft deal: a contract provision stating that, if Google's RPS (revenue-per-search) query rate is higher than Microsoft's and Yahoo's combined RPS rates, then Yahoo can terminate the agreement. Five years into the deal, Yahoo can terminate if Yahoo's RPS rate in the United States is less than a percentage of Google's estimated RPS on a 12-month average. Microsoft will also pay $150 million to Yahoo over the first three years of the agreement, and hire over 400 Yahoo employees.