Google Versus Bing Locked for 2010, as Microsoft and Yahoo Finalize Deal

Microsoft and Yahoo finalized their search-and-advertising agreement on Dec. 4, with Bing to power search on Yahoo's sites. The deal effectively narrows the major competitors in the U.S. search engine market to Google and Bing, although Bing will continue to face a major challenge in Google's 65 percent U.S. market share. Signs of tension between Yahoo and Microsoft over the summer indicate that the partnership may not be the smoothest in all aspects, even after the finalization of the deal.

Microsoft and Yahoo announced the finalization of their search-and-advertising deal late on Dec. 4, positioning Microsoft and its search engine, Bing, to challenge Google in a more robust way in 2010. The deal will essentially eliminate Yahoo's presence in the U.S. search engine market.

In a joint statement, both companies emphasized their strategy of creating a singular alternative to Google, which currently occupies 65 percent of the U.S. search market-more than twice that of Microsoft and Yahoo's combined share.

Under the terms of the deal, Microsoft's Bing will become the back-end search engine for all of Yahoo's sites, while Yahoo handles worldwide sales duties for both companies' search advertisers. If Yahoo's current U.S. search engine market share is ported over to Microsoft with no attrition, then Bing's share would rise to 26.7 percent, at least based on search engine market numbers produced by statistics firm Experian Hitwise in November.

"Microsoft and Yahoo! believe that this deal will create a sustainable and more compelling alternative in search that can provide consumers, advertisers and publishers real choice, better value, and more innovation," read the statement. "Yahoo! and Microsoft welcome the broad support the deal has received from key players in the advertising industry and remain hopeful that the closing of the transaction can occur in early 2010."

Microsoft has already suggested that the agreement could expand globally; during a trip to Tokyo in November, Microsoft CEO Steve Ballmer said, "It's possible that we will extend the partnership outside the U.S.," adding, "We will have to wait and see if we can get approval inside the U.S. first."

While the deal may still be under evaluation by the U.S. Department of Justice, neither Microsoft nor Yahoo has expressed concern about a possible government block.

"We don't expect any[thing] different than we did in July," Yahoo CEO Carol Bartz said on Sept. 22, during a Yahoo event at NASDAQ MarketSite in Times Square. "We still expect it to close in early 2010."

Microsoft recently updated Bing with a number of new features designed to enhance its appeal to consumers, including the addition of Streetside "eye-level" views and a Twitter feed to Bing Maps, as well as search results from Wolfram Alpha, a computational engine that offers a decisive, usually numerical answer in response to search queries.

Despite the finalization of the deal, however, signs of tension have cropped up between Microsoft and Yahoo over their new roles.

During an Aug. 24 press conference, Yahoo took pains to emphasize that it remained an independent entity, despite Microsoft powering its search.

"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, told the assembled media. "We will be free to innovate on top of that layer."

Given that what Raghavan termed "megawatt" search is now handled by Bing, Yahoo will re-center its focus on the end-user experience, with feature upgrades to Yahoo Search, Yahoo Messenger, Yahoo Mail and other programs.

A few days later, Microsoft retorted in an e-mail to eWEEK that Windows Live already offered Yahoo's upgrades.

"Windows Live has already made a big bet on e-mail and its role as people's core communication vehicle, especially in the United States," that Microsoft spokesperson wrote. "We're also focusing on simplifying people's online experiences, offering the ability to have a single center of gravity on the Web where a person can check their mail and stay up-to-date on what their contacts are doing across the Web."

How the continued competitiveness between the two companies will affect Bing remains to be seen. Under the terms of the 10-year agreement, Yahoo can escape the contract if Google's RPS (revenue-per-search) query rate becomes higher than the combined RPS rates of Microsoft and Yahoo. After five years, Yahoo can also terminate in the event that its RPS rate in the United States is less than a certain percentage of Google's estimated RPS on a 12-month average.