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Yahoo Seven could be forced to use the new Bing search engine after Microsoft and Yahoo reached an agreement on both advertising and search.


Yahoo Seven could be forced to use the new Bing search engine after Microsoft and Yahoo reached an agreement on both advertising and search.

The revenue share deal, follows Microsoft’s unsuccessful bid to buy Yahoo’s search business for $1bn last year. According to reports, Bing, Microsoft’s newly launched search engine, will become Yahoo’s default search service as part of the deal.

According to the Guardian newspaper in the UK, this will give the two companies a combined market share in the US search ad market of about 30%. Google would still be the dominant force with a share of around 65%.

For the first two years, Yahoo will keep 100% of the revenue plus an additional 10%, according US tech blog AllsThingsD, and 90% in the third year. The aim is that, from the fourth year of the deal, Microsoft will become the number two player in the US seach ad market.

A search ad deal between Google and Yahoo ran into huge opposition last year and ultimately failed to gain US regulatory approval. Microsoft and Yahoo are thought to expect some form of regulatory scrutiny from the Department of Justice.

Relations between Yahoo and Microsoft, which last year made an unsuccessful $47.5bn takeover bid, have warmed since January, when Yahoo co-founder Jerry Yang was replaced as chief executive by Carol Bartz.

 

 

Under the 10-year agreement ­ negotiated by Yahoo’s Carol Bartz and Microsoft’s Steve Ballmer ­ Yahoo will use Microsoft’s Bing search engine on its Web sites, the companies said. Yahoo, in turn, will sell ads that appear next to those Web-search results and the companies will split the revenue.

Microsoft will not pay an upfront fee to Yahoo.

In return for ceding control of its search engine, Yahoo gets to keep 88 percent of the revenue from all search ad sales on its site for the first five years of the deal, and will also have the right to sell adverts on some Microsoft sites.

“This agreement comes with boatloads of value for Yahoo,” Carol Bartz said in a joint statement. In a speech back in May she used the word “boatloads” to describe the amount of money she would require to sell Yahoo’s search business to Microsoft.

Yahoo expects the agreement to add $500 million to annual operating income and save $200 million in capital costs. It should also give Bing a giant boost in competing with Google’s search engine which currently accounts for around 70 percent of US Internet searches. Last month, Microsoft had 8.4 percent and Yahoo 19.6 percent.

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