Live Blog: Microsoft, Yahoo discuss deal

Roughly 18 months after the word Microhoo entered the technology lexicon, the two companies finally have a partnership to speak of.

As part of a 10-year pact announced early Wednesday, Microsoft's technology will power the two companies' search sites, while Yahoo will handle ad-selling duties.

Executives from both companies will discuss the deal in a conference call from Yahoo's headquarters in Sunnyvale, Calif., at 5:30 a.m. PDT. Follow the live coverage here.

5:32 a.m.: Still listening to meditative hold music. They really could use something more upbeat.
5:33 a.m.: Getting the details on how conference calls work. Apparently we'll be in some sort of "listen-only mode."
5:34 a.m.: There will be some forward-looking statements. (Stuff they predict may or may not happen.)
5:35 a.m.: Yahoo CEO Carol Bartz says deal is a game changer "and I'm glad to finally be able to talk about it." She added: "We face a formidable competitor in one area and that area is search."
5:37 a.m.: Yahoo's sales force will handle sales of both sites' search. Self-serve ads will be fulfilled via Microsoft's AdCenter.

"What this deal is really about for everyone is scale," Bartz said. By combining, they can deliver a viable alternative.

Funny how it's all about Google, but she's not naming Google.

"Everyone wants a real alternative and advertisers are no different," Bartz said.

"Powered by Bing" will appear at the bottom of the Yahoo search results.
5:40 a.m.: "This agreement has been a longtime coming," CEO Steve Ballmer said. Um, yeah.

Ballmer continues: the bottom line is the agreement will enable us to create more innovation in search, better value, and world peace. (Maybe not the latter. Remember, these are forward-looking statements.)

It's apparently a win-win.

"Both companies benefit from scale and better economics. Consumers really will get better products," Ballmer said.
5:42 a.m.: Bartz talking nitty-gritty details. Both companies will have separate display-ad sales forces. Microsoft will pay Yahoo 88 percent of revenue for search ads on Yahoo sites.

"Our revenue will come down a bit due to revenue sharing," Bartz said, but added that operating income should rise, expenses drop, etc.

"This deal won't happen overnight," Bartz said. First, the companies will have to convince regulators it's a good thing.

Assuming they get the OK, the companies will start with major markets, including the U.S., which will transition to using Bing results in 3 to 6 months. Shifting from Yahoo's Panama paid search tool to Microsoft's AdCenter will take 12 months. Full global roll-out should take 24 months.
5:46 a.m.: On to the Q&A.

So why not display advertising? "We wanted to keep this as simple and straightforward as possible," Bartz said.

"We're taking a big bite here," Ballmer said. "Search is a more well-known thing" when it comes to automating the ad-selling.

How big is the revenue-per-search gap? (Microsoft is guaranteeing a certain amount of revenue for each search query to Yahoo.

"We and Yahoo are sort of close and we both lag Google," Ballmer said. Some of that is scale, he said which will be helped by deal.
5:49 a.m.: Why no "boatloads of cash" from Microsoft. Why wasn't there an up-front payment?

"Having a big cash payment up front doesn't really help us from an operating standpoint," Bartz said. As far as we're concerned, she said, the "boatloads of cash" is preserving our revenue line.
5:51 a.m.: The two companies have talked about the financial impact to Yahoo, but what about Microsoft?

Ballmer acknowledges that most of the revenue from Yahoo's search results will go back to Yahoo. "We paid a high TAC rate," he said, referring to traffic acquisition costs and the 88 percent of revenue that Yahoo will get.

Microsoft will spend "a couple of hundreds of millions" of dollars for implementation and transition costs "We're sort of betting into the future," Ballmer said. The upside, he said, is better relevance. "Ads are part of being relevant and we have a better chance of being relevant." Ballmer said it should improve relevance on both sites. The upside comes as execution really builds.

"There's a lot of work involved in this transition to our platform," Ballmer said.
5:56 a.m.: Any opposition in Washington?

"We expect we will face some opposition from...the competitor," Ballmer said. (Assuming he is talking about Google and not Ask.com)

Ballmer said that the deal benefits advertisers, publishers, and consumers.

"Obviously, we will be called to present that case in D.C. and Brussels and other places," Ballmer said.
5:58 a.m.: What about impact on jobs?

"There are certainly many Yahoo search employees that will be asked to take jobs at Microsoft as they integrate the technology," Bartz said. "There will also be search employees that we look to help us on the display side... And then unfortunately, there will be some redundancies in Yahoo."

Nothing will change until we get regulatory approval, which we hope is in early 2010, Bartz said. "There will be redundancies, but it will be in the future." Bartz didn't give an estimate of how many jobs will be lost.
6:01 a.m.: The most complex part of the deal, Ballmer said, is around protecting privacy and allowing both companies to build their products around search.

"You really have to say what data gets shared and how does it get shared," he said.

6:03 a.m.: How can Yahoo innovate if Microsoft is in charge of the technology?

"There is a lot of innovation that happens above the search results," Bartz said.
6:04 a.m.: What does this mean in terms of mobile and platforms beyond the Web?

"We spent time talking about mobile," Bartz said. "We have the option of using the Microsoft technology for the mobile Web experience. It's not exclusive as it is on the PC. The only difference is it is not exclusive. If somewhere down the road we wanted to switch, we could."
6:06 a.m.: What is the rate when Yahoo sells on Bing.com? What is the risk and impact on Yahoo's affiliates? What about all of the 800,000 advertisers that are running their campaigns only on Google.

Yahoo actually doesn't get split of Bing revenue.

"When the Yahoo sales people sell (they) don't know whether will sell on Yahoo or Bing," Ballmer said. "You are buying the keyword in both environments."

As for Google-only advertisers, Bartz said that combining Panama and AdCenter will help. "Smaller advertisers want to make sure there's a meaningful market, and they don't want to learn three platforms."

Ballmer said that the bulk of Google-only advertisers are outside the U.S. where the companies have even less share. Google has 78 percent of the paid search market here, but in Western Europe, Ballmer said, it is more like 92 percent.
6:12 a.m.: How much code will come from Yahoo vs. Microsoft's Bing. Our engineers know Bing, Ballmer said, but he added that Microsoft will be getting access to any technology from Yahoo. "We have a license to code."

Ultimately, though, Ballmer said, Microsoft will have to make those choices and build a product that is financially more successful than its current search effort. "The burden is on us to deliver the goods."
6:17 a.m.: Why is this deal better than one on the table last year.

"I've done some exploring of that," Bartz said. "There's actually more fiction in the market than there is fact."

The search partnership discussed last year would have had a big up-front payment, but would have generated less revenue over the long term for Yahoo.

"We really are trying to run a long-term business here," Bartz said.

Ballmer noted that last year's deal was negotiated more by the boards than by the operating management.

"The deal is different...For Microsoft, this deal is not better, but this deal is different," Ballmer said.
6:21 a.m.: Who will be in charge of execution?

There will be a team from both sides, Bartz said.

"This is not a minor project," Ballmer agreed. "This is a major execution (challenge)," he said, noting that for Microsoft, the team will include the top leadership of the online business, including former Yahoo executive Qi Lu.

"It's not like we come here with a two-page term sheet," Ballmer said. "I think we have well over 100 pages written to describe what we are doing."

Bartz acknowledged that a partnership is harder in some ways than going it alone. That's why the companies wanted to make sure they were really committed to one another.

"Dating is one thing," she said. "Having a partnership is another."
6:28 a.m.: Call ends, with a pitch for the companies' joint Web site www.choicevalueinnovation.com. (I guess ButItsNotGoogle.com was taken.)