Microsoft and Yahoo! today unveiled a 10-year deal to create an online search and advertising partnership in an effort to challenge Google, the world’s biggest internet search engine.
Under the agreement, Yahoo! use Microsoft’s new Bing search engine on its own sites, while Yahoo! will act as the exclusive global sales force for the companies’ premium search advertisers.
Yahoo! will get to keep 88 per cent of the revenue from all search ad sales on its site for the first five years of the deal, and have the right to sell ads on some Microsoft sites.
Yahoo! estimated the deal will boost its annual operating profit by $500 million and save it about $275 million on spending since it will not have to invest in its own search technology.
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The deal has been announced more than a year after Yahoo! rejected a $47.5 million (£29 million) takeover bid from Microsoft and Yahoo!'s attempt to strike a search advertising deal with Google fell apart under regulatory scrutiny.
Microsoft is counting on Yahoo!'s search engine, which ranks as the second largest in the world with a global market share of 8 per cent, to pose a more formidable challenge to Google, which holds 67 per cent of the global audience, according to the most recent data from the research company comScore. In the US, Google's share is 65 per cent, compared with 20 per cent for Yahoo!.
Despite spending billions to upgrade its search engine, Microsoft still held just a 3 per cent share worldwide and 8 per cent in the US in the comScore rankings.
There is a chance a deal combining the powers of the second and third-ranked search engine companies would be blocked by antitrust regulators.
Shareholders of both Microsoft and Yahoo! have been urging the two to strike a deal for some time.
Earlier this month, the activist investor Carl Icahn, who owns about 5 per cent of Yahoo! and is a director on its board, spoke out again in favour of a search deal, as talks between the two companies appeared to regain momentum.
