Yahoo ends era with Microsoft link

Yahoo Inc.’s 15-year battle for online search supremacy ended with a whimper Wednesday when it signed away control of its trademark search platform to Microsoft Corp.

Microsoft proved that persistence pays off as the software giant finally inked a deal with Yahoo after years of wooing the slumping Internet firm to team up in a fight against market leader Google Inc.

Microsoft is taking over Yahoo’s search platform under the 10-year-deal, replacing it with Bing, the Redmond, Wash., company’s newly revamped search engine. That allows the software maker to tap into the Web’s second-largest search audience in its quest to win over users from Google, which dominates both online search and advertising.

Capping a saga reminiscent of a soap opera love triangle, Wednesday’s terms are a far cry from the overture made by Microsoft last year, when Sunnyvale, Calif.-based Yahoo spurned the suitor’s $47 billion takeover offer. This time, Microsoft will not pay any money upfront, but rather will let Yahoo keep 88 percent of the search advertising revenue for the first five years.

“Through this agreement with Yahoo, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company,” Microsoft Chief Executive Officer Steve Ballmer said.

But the move also closes the door on what many consider the original Internet search engine, established by two Stanford University electrical engineering graduate students - David Filo and Jerry Yang - during the 1990s ramp-up of the Internet.

The two were soon supplanted by another pair of Stanford grad students, Sergey Brin and Larry Page, whose Google search engine surged ahead in large measure due to its methods of combining searches with advertising links. Yahoo, a survivor of the 2001 dot-com crash, has struggled to keep pace since then.

Microsoft said the deal will give Bing, a search engine launched June 3, “the scale necessary to more effectively compete, attracting more users and advertisers, which in turn will lead to more relevant ads and search results.”

One analyst said this would give Bing more of the approximately 30 percent of online searches that do not use Google.

“For Microsoft, I think this [deal] is good,” said Mary-Jo Foley, a veteran technology journalist and Microsoft blogger. “They get rid of the No. 2 search competitor; they’re now providing the search engine for Yahoo; and Microsoft doesn’t have to shell out $47 billion to get Yahoo’s search [volume]. It’s helpful to them to get a little bit more leg up against Google.”

Another longtime technology watcher, Rob Enderle, principal analyst at the Enderle Group in San Jose, Calif., said the deal was “probably better than the merger was going to be. The combination of the two companies leaves the best of both intact. If they’d run the companies together, it would have been a bloodbath on the Yahoo side.”

Now, Mr. Enderle said, “Yahoo can go back to trying to find whatever future it’s entitled to.”

Yahoo said it expects to rake in $500 million more in operating profits this year and save $200 million on capital expenditures as a result of the deal, which the companies hope to close next year.

Yahoo Chief Executive Carol Bartz said an undetermined number of Yahoo engineers will be laid off but stressed that the partnership means the firm will be able to boost investments in display advertising and other areas.

Story Continues →