As we first reported yesterday, Microsoft and Yahoo are on the verge of announcing a complicated search and search marketing alliance that will combine the no. 2 and no. 3 players in search into something that may have a chance of competing with Google (although combined they will still have less than half of Google’s 65% or so search market share). The deal will be announced shortly after signing, and could come as early as today (Wednesday).
If the deal is completed it will close the 18-month long negotiation that began with a $45 billion merger offer on February 1, 2008. The details of the deal will determine the bump in Yahoo’s share price, something investors really desperately desire.
Here’s what the deal may look like (from a Thomas Weisel Partners analyst report colorfully titled BingHoo! earlier this evening):
Deal (Finally) Inked: After a nearly three-year mating dance, Microsoft and Yahoo have agreed to a joint venture. The official announcement (hopefully with the financial implications) is expected tomorrow, July 29, the day before Microsoft’s annual analyst day.
Bing becomes the algorithm: Importantly, Bing is expected to become the default search engine for Yahoo, as it has become across Microsoft’s network since its launch in June. By combining both companies’ engineering talent, search indexes and ad platforms, Microsoft believes it can improve its ability to drive innovation in emerging areas such as video, mobile, and online commerce; all areas where Google is currently focused. The combined Yahoo-Bing search would have 28% share in the U.S. according to comScore. But combining search indexes and reorganizing a global sales force across two companies is not a trivial matter and a distraction that Google can take advantage of. It is unclear what the cost savings would be to Yahoo. A year ago Yahoo management (headed by former CEO, Yang) indicated outsourcing all of search would yield a $750mn annual benefit. Given this deal covers only the algorithmic side and Yahoo has been cutting costs over the past year, we estimate the savings would be less than half that amount.
Ad sales primarily owned by Yahoo: While details are still trickling out, it appears that Yahoo is slated to sell search inventory across both networks, capitalizing on Yahoo vertical strength in entertainment, finance and sports and Bing’s emerging strength in travel and retail. In addition Yahoo could gain the ability to sell display inventory across both networks along side search. The deal allows the parties to focus on core strengths: for Yahoo it’s selling and Microsoft it’s engineering.
No Upfront Payment—Where’s that “boatload of cash?”: The reported deal does not include an upfront payment to Yahoo, a previous element of prior proposals, which may mute upside in Yahoo shares. Several critical details have yet to emerge: like the revenue share agreement and split levels, renewal terms of the partnership, cost savings and ultimate ownership of the data. For example, if the search deal is an 80/20 split, Yahoo would cede about $400mn of 2010 revenue to Microsoft. In addition, we estimate that Microsoft generates about $2bn in annual display revenue. If Yahoo got to sell half of that at an 80/20 split suggests Yahoo could see $200mn in incremental revenue.
DoJ Scrutiny Risk: Importantly, the deal is likely to face a fair amount of interest from regulators regarding display advertising, which could delay the partnership by several months to several quarters.
The bottom line is, no one expects any upfront payments to Yahoo. Revenue split estimates range from 80% – 110% to Yahoo (higher in the beginning), and there is likely a hefty guaranteed revenue component so assuage the Yahoo board of directors.
This is a much different search deal that Microsoft offered Yahoo a year ago. From our summary of that long-dead offer:
Microsoft’s Last Offer
Microsoft last offered Yahoo a combination stock, asset and business deal that sources with knowledge of the situation summarize as follows:
Microsoft to acquire 16% of Yahoo’s outstanding stock from existing stockholders for $8 billion, or $35/share.
Microsoft to acquire all of Yahoo’s search and search marketing assets – servers, code, advertisers, third party publishers, intellectual property and employees (perhaps 3,000 of them) for $1 billion in cash plus a guaranteed CPC rate that is higher than what Yahoo can generate itself.
Yahoo gets increased search revenue from the deal over what they generate now, and get to remove people and operational costs of search.
Yahoo agrees not to touch the search or search marketing businesses directly ever again. All their searches are controlled by Microsoft.
It’s also much different, and likely much less attractive, than the Google/Yahoo search deal announced last summer and which was terminated before implementation.
We’ll analyze the actual deal terms as they are announced, but our guess is the likely outcome of this is one big complicated mess. The result: Google will take even more search share. Why these two companies don’t just merge is beyond me – everyone we’ve spoken with says everyone, on both sides of the table, would prefer a merger. Everyone, that is, except Microsoft CEO Steve Ballmer.
So overall Bing Wins and yahoo is the partner and no cash transactions
Seems nice!
Actual market share of goog-yhoo were not 65-20, but 85-10 in terms of search $ revenues which actually counts. So yhoo could not compete in seach ever since 2004, though it had “search market share” of 20-30%. Im trying to highlight difference between “search market share” Vs “search revenue market share”, which was against yhoo ever since 2004(also highlight 2004, when yahoo search revenue share was 0% which grew to 10% in 2009).
And yahoo was investing in searchmonkey/BOSS while easy basic “duplicate webpage detection” algo was missing! Which would save both server memory and match processing, while improving pageRank relevancy. See same webpage different url: http://www.bing...ent-issues.aspx
Its sad that Yahoo gave up on search a long time ago when it partnered originally with google. They just started focusing on becoming a media company instead of a search company.
This is a great win for Bing and for Microsoft. Plus Yahoo keep and improve revenues.
its a great way to add shareholder value to Google.
Because its finally got some serious competition or because it’s essentially a one-trick-pony?
because if you’ve ever worked at or near a big company, you’ll know exactly what mj means. huge mergers are near impossible to execute well. this is even worse. history will not be kind to yahoo.
Is this a merger? Its just a search deal, a partnership. They are still separate corporate entities.
Arrington is right.
Still puzzled why Yahoo didn’t accept the Microsoft acquisition offer back then.
you mean on February 2, 2008? Because they were idiots.
Well, Yahoo didn’t want to be acquired. This partnership will keep Yahoo independent for now. Who knows, they can develop new technologies and become a better, more profitable company and not rely on the borg.
Arrington is right again.
I think they have a bad blood between each other, but in the face of the dangerous opponent: Google, they have to be practical and do something and confront the opponent common to both of them. Otherwise, both bing and particularly yahoo search will go down gradually.
“they have to be practical and do something”
right. like merge.
True. It was basically Jerry Yang that didn’t want to merge. I read somewhere he talked about running a company that lasts very long, but if the company is a public one it is hard to do things your own way. But I think Yahoos assets are huge: yahoo mail, finance, games, sports. I think Yahoo wanted a last shot, which is this one and will probably give in if this doesn’t work out.
Exactly, Yahoo is still a strong independent online company, unlike MSN. Say they develop a new twitter-like technology and hit a home-run, they can keep their company.
Merge? So in other words you are saying 2 players are better than 3?
What about the fact that Microsoft has a long history of screwing up when they attempt to bring other companies under their umbrella?
@Robin, It is about ideology and independence. Also anti-trust issues in mail, messenger etc services, while anti-trust is absent in search deal.
This is good for both Microsoft and Yahoo. Both of them are very weak in the search market. They won’t lose anything by combining their search deal. They have common opponent: Google. After they get some share from Google, they can turn on each other, but that is a long time if that ever happens. This is a good plan. Otherwise both MS and Yahoo will continually lose share fast. They can’t merge, because there is still some distrust/disagreement between the two, especially from Yahoo’s side.
this is a good plan in the same way rearranging the deck chairs on the Titanic was a good plan.
I don’t think Yahoo is dead and that is why MS is willing to work with them even after Yahoo bluntly refused. They know Yahoo is valuable and has a far reach. Remember it is the 2nd most visited website in the world: Yahoo network. No doubt they are in a tough spot though.
And you’re definitely right again.
can’t believe no one else has seen this:
yahoo + bing = ying
ying + yang (well sorta not anymore) = harmony
ha!
Well, I actually HAD seen this.
But I’m not a person who expresses her emotions very spontaneously.
So I decided to hold it back.
I just wanted you to know.
Thanks for listening.
The offer was made on February 1, 2008, not 2009
right. that’s what I said. didn’t edit that at all.
Good to see Yahoo search engine will soon replaced.
Their algorithm worth nothing but mess. Any companies, ASK, baidu or beginner-search.com take over it is a benefit for all users.
Ballmer screwing things up again.
Not the search deal, but the merger.
Sure, because holding out on Yahoo’s ludicrous price rather than paying a huge amount of cash for an overvalued asset base just before a market crash is really bad business.
Please don’t talk about business as you apparently are somewaht cluless about it.
It will be start of end for Yahoo!
Steve Ballmer rhetoric aside, It would good to see a follow up detailing just how you see Google taking even more search share. The deal itself has a pathetic track record but that’s not to say the this can’t work.
In my view this deal is just the prelude to something bigger; right out acquisition of the Yahoo search or of all of Yahoo. But that can’t happen right now as MSFT would not and could not offer more than $ 10 a share (rightly so) for a dying company and Yahoo could never accept such an offer.
This is a (long) way for MSFT to get the deal done without embarassing the Yahoo brigade of happy losers, including Yang and Bartz.
Three big letters: DOJ.
This is one scenario where the arithmetic does not work, two plus two is not four. If the two search engines are merged, that will give more space for Google Search to expand.
Google Search will be beat through innovation not mergers.
This is the end of Yahoo!!! thanks to Carol, She is hired to do this… She is killing a gr8888 company
Bing just tweeted a site about the deal it seems
“bingBing. Yahoo! Two great tastes that are now going to be great together. Check out http://bit.ly/9eUh7 ^as”
Lets hope it’s the bankers and lawyers that are busy at Yahoo/Microsoft —-and not some just the PR department— cause the news is getting really boring. (((www.mobiliciouz.com))
Wow! Finally Microsoft has reached a deal Yahoo for an internet search partnership. Will the newly announced deal between giants Microsoft and Yahoo be a good thing? Got to wait and see. But atleast Microsoft and Yahoo deal is straightforward and not complex at all and ofcourse, the negotiation talks have been going for long. I was just curious to know all the past negotiations between Microsoft and Yahoo so collected all the articles and links (more than 200) related to the current merger and the previous events or negotiations between Microsoft and Yahoo. If you are interested check the link below.
http://markthis...-from-2007.html
Earlier comment doesn’t look like it showed up, so I’ll try again.
I think a merger, where Microsoft had to digest Yahoo! and spit out bits that the DOJ and EU wouldn’t let them keep, deal with even more redundancies, etc. would have been more complex and taken more time to get right. Even though the current deal is still extremely complex, its probably better than a merger.
Of course, if the idiots at Yahoo! had taken the deal at $35, they’d be off to the bank and by now the merger would have completed and the combined company might be starting to move along strongly. Instead, they’re just now getting something together and have 6 months or more of pain before they can get momentum, still that’s better than a merger and 18-24 months more of pain.
I knew last time when the talk collapsed, it will come again something like part of sharing or fighting together.
The MicroHoo deal is pure rev share. If Ballmer gets tired of Bing within the next ten years, Yahoo is screwed.
I’m sure it will take a while for the dust to clear on this to see how it will really affect both companies as well as the industry. I for one am excited for the new opportunities it will present and the new innovations that will hopefully arrive now that Google has a bit of healthy competition! Our team has been watching this closely, if you want our two cents of how this ‘MicroHoo’ or ‘Ying!’ merger is going to affect the SEM industry, check out our post http://kl.am/1P6m