Microsoft to take over Yahoo's search engine

In a landmark deal, Microsoft will take over the seach-engine business of rival Yahoo, and become the world's second-largest search engine after Google

If you've ever seen two midgets get past a rollercoaster's height restriction by standing on top of each other in a trench coat, you'll understand why Microsoft and Yahoo's decision to join forces in the search business makes sense when trying to take down Google.

A ten-year deal announced today follows what seems like years of negotiations, company reshuffles, infiltrations of high-powered shareholders and even the replacement of Yahoo's own CEO. But Yahoo has finally handed over the reins of its search business to Microsoft, which will power search on Yahoo's sites with its own engine, Bing, and become the world's second-largest search engine after Google.

In the US, this would mean Microsoft takes 30 per cent of the search engine market to Google's 65 per cent. In Europe, however, Google's share is even higher -- around 80 per cent of all European Web searches currently go through Google, providing Microsoft with an even greater challenge.

But in return for effectively sacrificing the very foundations Yahoo was built upon -- Web search -- Yahoo will, for five years, keep 88 per cent of cash generated by the sales of ads displayed against search results, and Yahoo will be in charge of selling those ads.

It also means, according to Yahoo, a $500m increase in operating revenue, and an important $200m in savings -- a large portion of which probably coming from layoffs in its search division.

Quite what it means for Google, which has had a partnership with Yahoo to supply some display ads since last June, is yet to be seen. We contacted Microsoft and Yahoo for comment, but neither company has yet responded.

What this means for you, however, is that Yahoo's search engine will display results as delivered by Bing. The site itself probably won't change, but the results will. Our experience with Microsoft's Bing product has been excellent, and for Yahoo users it could be a big win.

But for Jerry Yang, co-founder and ex-CEO of Yahoo, this is a sad day. He would never have been able to pull off this deal, due his personal attachment to the company and its history. Current CEO Carol Bartz suffers no such sentimental commitments however, and knows that if Yahoo wants to keep sailing, it needs to throw its weaker businesses overboard. And that means kissing a bitter goodbye to handling its own search engine.

Of course, this entire deal could still fall through if regulators deem it in some way anti-competitive, but the two companies hope to close the deal early next year. It would mark the end of Yahoo being seen as a search engine and portal, and hopefully the beginning of perceptions of it as a global digital media goliath.

 

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