Microsoft, Yahoo Consummate Search Deal

Microsoft and Yahoo Dec. 4 said they have finalized a deal that would enable Microsoft Bing to power Yahoo search.

“Microsoft and Yahoo believe that this deal will create a sustainable and more compelling alternative in search that can provide consumers, advertisers and publishers [with] real choice, better value and more innovation,” the companies said in a brief statement.

The search engine rivals announced their intent to join forces against market leader Google July 29 with a 10-year pact to let Microsoft’s Bing search and advertising platform propel Yahoo’s search results.

Yahoo will retain its search interface and receive 88 percent of traffic acquisition costs for the first five years of the deal, and 93 percent in the second leg. The deal is oriented toward desktop search advertising and does not extend to Yahoo’s core display and mobile ad businesses, which are strong.

Microsoft and Yahoo were supposed to consummate this “Microhoo” deal by Oct. 27, but the companies delayed signing it to finalize details.

The deal is a valiant effort to challenge Google, which has a 65 percent U.S. search market share and 70 percent worldwide market share that easily outstrip those of Yahoo, Microsoft, Ask and other players in the market–combined.

Together, Microsoft and Yahoo would command 28 percent of the market. Bing has made solid gains since launching in June, growing from 8.4 to 9.9 percent since its launch, according to ComScore.

Yahoo meanwhile has slipped to 18 percent, prompting financial analysts such as Broadpoint AmTech’s Ben Schachter to question the company’s long-term viability in search.

“Yahoo has ceded share in each of the last nine months, clearly a trend, and a worrisome one at that,” Schachter wrote in a Nov. 17 research note. “With both Google and Microsoft taking share from Yahoo, it is difficult to pinpoint the reason for the recent share loss acceleration, but Yahoo must find a way to stabilize its share loss or all the effort spent negotiating terms of the search deal will be the least of its worries.”

Supported by Microsoft, the question may be moot. However, the Department of Justice is scrutinizing the Microhoo deal, even though groups such as the Association of National Advertisers have asked the DOJ to approve it because the ANA believes it is good for the online advertising market.

“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,” the companies concluded in their statement.

The Microhoo consummation comes just days before Google is to host a search event at the Computer History Museum in Mountain View, Calif., and days after Bing made a bang with significant enhancements to Bing Maps, chiefly replacing the older AJAX mapping technology with the Microsoft Silverlight plug-in.

The completed deal also comes after Bing stopped working for 30 minutes on Dec. 3, causing a minor furor in the blogosphere.