Microsoft and Yahoo come to an agreement

July 30, 2009 – 12:30 pm – No Comment

Microsoft and Yahoo have finally quit their quarrel and decided to play nice in order to stop Google’s quick rise to the top. The ten year deal that was announced yesterday will give Microsoft access to Yahoo’s internet search engine, which is the second largest on the internet. The search engine will beef up Microsoft’s arsenal while it tries to one up Google in the rankings.

The deal will give Microsoft the ability to show off its Bing search engine and let users decide if they like the new engine better than Google’s. Microsoft is hoping to use Yahoo to get some of the ad revenue from Google, who generates more than $20 billion per year in ad revenue.

The venture with Yahoo will triple Bing’s U.S. market share to 28%, which is still far less than the 65% share that Google currently has, but it is a big difference from what it currently has.

In combining their best aspects, Microsoft will take over search technology and Yahoo will concentrate on sales and advertising on the internet. Yahoo will also be in charge of getting traffic directed toward its websites.

While the agreement shapes up as a potential boon for Microsoft, it was greeted in the stock market as a letdown for Yahoo. Just 14 months ago, Microsoft dangled $9 billion in front of Yahoo in an attempt to forge a search advertising partnership, only to be rebuffed. Yahoo had also turned down Microsoft’s $47.5 billion bid to buy the entire company.

Yahoo has been doing so badly since then that Microsoft didn’t offer any money in advance. Instead, the company offered 88% of search ad sales made on the site.

By 2012, Yahoo is expecting to boost its annual operating profit by around $500 million thanks to spending less on its own search technology.

“I think a lot of people are kind of looking at the numbers and seeing a lot of question marks where they expected to see exclamation points,” said Scott Kessler, a Standard & Poor’s equity analyst.

After the news came out, Yahoo’s shares dropped 12%, Microsoft’s shares gained 33 cents and Google’s shares dropped $3.61 (to $436.24).

“This move makes up for a lot of the stupid mistakes made by the preceding administration,” said technology analyst Rob Enderle, who thinks Yahoo will be able to devote more energy to developing services to compete with online hangouts like Facebook.
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