Week in review: Microhoo, at last

After 18 months of fits and starts, press leaks, and behind-the-scenes drama, Microsoft and Yahoo this week signed a 10-year search dealthat will see the two companies join forces to take on Google.

Under the deal inked Wednesday morning, Microsoft's technology will power Yahoo's search results, while Yahoo will handle ad-selling duties for both companies' search sites.

It's expected to go into effect in 2010 and improve Yahoo's profitability, though not its revenue, the companies said. Yahoo will get 88 percent of search revenue created by its sites during the first five years, while Microsoft will guarantee a certain level of search revenue for 18 months in each country.

Less expansive than the all-out $44 billion acquisition Microsoft proposed last year--and smaller than even some of the search partnerships once discussed--the deal does allow the companies to share resources and combine their engineering efforts, as noted in reporter Ina Fried's breaking story. Even together, however, the two companies have only about 30 percent of the search market compared with Google, which has more than twice that amount.

The news finally puts an end to one of the tech industry's biggest will-they-or-won't-they stories, noted reporter Tom Krazit. It also marks the end of an era for Yahoo as an independent search company, allowing it to further cut costs and rebrand itself as a digital media company.

It likewise transforms Microsoft, which recently unleashed its new Bing search tool, into a clear No. 2 behind Google in search technology, with what should be a steady stream of Internet-derived revenue. (Click here for Krazit's article on how the partnership was consummated and why it happened now--or here for a breakdown of the deal's advantages and disadvantages.)

Of course, while the deal mark the culmination of months of Microhoo maneuvering, it's also just the beginning of a long road. Not only will the companies have to win regulatory approval for the deal, they'll also have to figure out how to bring together disparate approaches to the search market.

Microsoft has spent much of its energy in the last couple years refining its core technology, improving in vertical categories, and rebranding its Web search under the Bing moniker. Yahoo, meanwhile has put a lot of energy into tools that allow others to build on its technology, including the BOSS (Build your Own Search Service) and SearchMonkey efforts.

Microsoft Senior Vice President Yusuf Mehdi, in an interview with Fried, said this company hasn't looked at the specific lines of code in that area, but is open to trying to take Yahoo's best ideas and integrate them into Bing.

The good news, points out reporter Stephen Shankland, is that both Microsoft and Yahoo can now get back to business. The Microhoo concept has been reduced from a giant cloud of uncertainty hanging over both companies to merely a complicated partnership between two rivals with Google as a common foe. The range of possibilities has been pruned back to a much more manageable scope.

And, specifically Yahoo, Krazit notes, can go back to being first and foremost a media company, in the business of attracting as many people to its properties as possible in hopes of selling lucrative ad deals on those pages.

That means content will be king, and Yahoo, as Krazit opines, will have to figure out whether it needs to expand its current offerings, pare down some of the less frequently used products, or tap an outsourcing strategy for this area too.

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