Under the terms of Yahoo's partnership with Microsoft, originally announced on June 29, Bing will power search on Yahoo's sites while Yahoo handles worldwide sales duties for both companies' search advertisers. In theory, the alliance allows both companies to more effectively compete against Google.
In the wake of the deal, however, Yahoo has gone out of its way to insist that it remains a viable competitor to not only Google, but also its ostensible partner. "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, insisted during an Aug. 24 press conference. "We will be free to innovate on top of that layer."
While Yahoo sees itself as no longer fighting a "megawatt war" for search, deploying its own engine to sort through billions of Web pages in order to gather results, the company is positioning itself to fight for its share of user applications including e-mail.
To that end, Yahoo announced during that press conference that it would tweak Yahoo Search, Yahoo Messenger and Yahoo Mail. The new Yahoo search page integrates results from a variety of sites, including YouTube and Yelp; its results for people searches will incorporate data from social-networking sites such as Facebook, LinkedIn, Twitter and FriendFeed.
Once incorporated within Yahoo's sites, Bing will hold close to 30 percent of the U.S. search-engine market, or roughly half of Google's share. Microsoft has suggested that, once certain engineering issues associated with the deal are overcome, the new influx of data from Yahoo sites will allow the company to refine and improve its search results and ad delivery.
Microsoft plans to pay Yahoo some $150 million over the first three years of the 10-year agreement, and hire more than 400 Yahoo employees.
In June, Bartz suggested that a search partnership between her company and Microsoft would save Yahoo somewhere between $500 million and $700 million, primarily in staff reductions and data center cutbacks. However, she also suggested - in what may have been a deliberate attempt to throw off any public scent of an imminent deal - that Microsoft was "not going to get scale through Bing" and that interest in the search engine would be "temporary."
Despite the comprehensive nature of the deal, Yahoo has a potential backdoor escape in a contract provision stating that, if Google's RPS (revenue-per-search) query rate is higher than the combined RPS rates for both Microsoft and Yahoo, then it can terminate into the agreement.