Microsoft and Yahoo! Reach Search Deal

July 30th, 2009

After three years of talks, Microsoft and Yahoo! have reached an agreement regarding online search. The ten-year deal gives Microsoft rights to Yahoo!’s search technology, while in return Yahoo! receives 88 percent commission from advertisements. Yahoo!, the number two search engine, and Bing, number three, are hoping to compile resources to take on Google. A main effect of the deal is that Yahoo!’s natural and paid search results will now be powered by Microsoft’s Bing.

The deal will triple’s market share to nearly 30 percent. However, the battery still has a long way to go in the search battle, as Google’s share of the market rests at 65 percent. The deal has not been as kind to Yahoo!, as its stock has dropped 16 percent as of Thursday afternoon. Microsoft hopes that Yahoo!’s advertising ideas will attract users to Bing, while Yahoo! hopes to add features to its site that will allow it to compete with more socially-oriented websites such as Facebook.

One potential hang-up is that antitrust allegations are already swirling. Google previously ran into problems when trying to reach a deal with Yahoo!. However, there is a better chance that the Microsoft/Yahoo! partnership will be upheld because it could likely increase competition with Google.

Advertisers long to benefit from viable competition with Google. “It is good for our clients and our agencies and for regulators,” said Martin Sorrell, a chief executive of British advertising group WPP. The merger could level the field if advertisers draw more traffic through the Microsoft/Yahoo! collaboration.

This massive change in the search engine world could certainly benefit users, as each side will continually have incentive to improve. However, others are less optimistic and predict the deal will have little impact.

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