Coverage: Yahoo and Microsoft alter search

Yahoo is looking to be the innovator in search, and to do so it’s combining forces with Microsoft. The companies have renegotiated the terms of their search deal and plan to combine sales forces to better serve clients.

Vindu Goel had this story for The New York Times:

Marissa Mayer has finally gotten what she’s wanted ever since she left Google three years ago to run Yahoo: a chance to build a new experience for searching the web and mobile phones.

Yahoo and Microsoft announced on Thursday that they had amended their 10-year search partnership to allow Yahoo to deliver its own search results and ads for up to half the searches done by visitors to Yahoo sites and apps.

Under the original agreement, struck five years ago, Yahoo was required to use Microsoft’s Bing search results and ads for all desktop searches, although it was free to use alternatives on mobile devices.

Yahoo’s one billion users will not see a new search experience immediately, and any changes will probably be gradual. The venerable Internet company, which dominated web search before the rise of Google, sold its search technology to Microsoft under the original agreement and has only a small team devoted to search now.

The Wall Street Journal story by Angela Chen said that the two companies would integrate their sales teams in order to better serve advertisers:

Now, Yahoo will have more control over how search results are presented on both desktops and mobile devices, though it will continue using Bing for a majority of its desktop search traffic. Microsoft will take over the job of selling ads for Bing, while Yahoo will continue handling its own ads for Gemini, the company’s native ad marketplace.

Microsoft and Yahoo will then each integrate their sales teams with the engineering teams to “allow both companies to service advertisers more efficiently, “ the companies said. That transition will occur this summer.

The original revenue-sharing pact had Microsoft paying Yahoo 88% of the search revenue generated from its sites during the first five years of the agreement, the companies then said.

Ms. Mayer, a former Google Inc. search executive, had made it clear she was unhappy with the terms. Yahoo’s revenue per search has been worse under the Microsoft deal than when it operated its own Web-search technology and advertising system. Ms. Mayer has worked to bulk up Yahoo’s Web-search technology and ad sales in areas that don’t infringe on the agreement with Microsoft, such as searches done on mobile devices.

Hannah Kuchler wrote for The Financial Times that the deal could alter search at other companies as well:

The changed deal could trigger a realignment among the leading search companies.

Yahoo first turned to Microsoft for a partnership only after its preferred option — a deal with Google — ran afoul of competition concerns from the Department of Justice. At the time, Yahoo handled 19 per cent of the internet searches in the US, while Microsoft’s Bing handled only 9 per cent. Regulators at the time worried Bing would fail in the face of a Google-Yahoo combination.

Since then Bing’s market share has jumped to 20 per cent while Yahoo’s has fallen to 13 per cent. That has made the alliance less essential to Microsoft, which at the time needed more traffic to improve its algorithms and advertising revenues. The change in market share may also free Yahoo to reallocate part of its search traffic back to Google without provoking regulators.

Jeremy Kressman, an analyst at eMarketer, said Yahoo had won “significantly more favourable terms than when the alliance was first formed”.

“The new agreement positions Yahoo to better monetise its own search traffic and put its own search ad products like Gemini front and centre,” he said.

Ms Mayer said she had worked closely with Satya Nadella, the Microsoft chief executive, for months to renegotiate the deal. “This renewed agreement opens up significant opportunities in our partnership that I’m very excited to explore,” she said.

Brett Molina wrote for USA Today about the background of the original deal and the terms:

The search deal was forged in 2009 by former Microsoft CEO Steve Ballmer and Carol Bartz, ex-CEO of Yahoo to loosen the grip of search giant Google.

“Our global partnership with Yahoo has benefited our shared customers over the past five years and I look forward to building on what we’ve already accomplished together,” said Microsoft CEO Satya Nadella.

The deal lasts for 10 years. Last month, Microsoft and Yahoo mutually agreed to extend a deadline on negotiations aimed at reworking the details of their search partnership.

The two companies combined are estimated to represent 6.5% of the global search market this year, according to research firm eMarketer. However, Google is far ahead with more than 54%.

And catching up with Google is the goal, particularly for Yahoo. Mayer has bet a lot on her new strategy and investors are getting impatient for her to start showing results. But getting eyeballs away from a search that has become it’s own verb is going to take more than just a better interface. It’s going to take a cultural shift.