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MS, Yahoo in deal to compete

Microsoft is launching its own search engine. Now it says it's making deals with Yahoo, its biggest rival in the search sector. What gives?

Yesterday, Microsoft (MSFT) announced that it would launch its own search engine. Today, it said it's making deals with Yahoo (YHOO), its biggest rival in the search sector.

What gives?

Welcome to the Internet market, where these kinds of deals happen all the time. Direct competitors get together to cut deals, cement partnerships, and distribute content because they really need each other.

It's like mountain climbers racing toward the summit. They all may want to be first, but they know that if they don't help each other along the way nobody's going to get there at all.

"We're in a state of the market where 15 percent of the households go online," said Jeff Sanderson, general manager of marketing for Microsoft Network. "If we all do a better job getting [content]...the greatest benefit is going to be getting lots more people online. We're not at the point yet where we're fighting over some finite market."

Television networks and the movie studios work the same way, added Sanderson. Studios develop shows that are then sell to others to air.

Today's deal was a straight trade for distribution between Microsoft and Yahoo. MSN, the software giant's online service, will put Yahoo on the its search page--alongside Microsoft's own search engine, code-named Yukon. Both choices will be available behind MSN's firewalls and on its Web pages. The distribution deals will be done by the end of the year.

Users, Sanderson explained, will have a choice between a directory--Yahoo--and an open Internet text search--Yukon, which will be powered by Inktomi. (See related story)

In exchange for featuring Yahoo to its audience, Microsoft's content properties will go before the considerable Yahoo audience. The popular directory will distribute news from MSNBC and car-buying information from CarPoint.

The deals are far from first and far from last. For instance, Microsoft's online magazine, Slate, recently has been landing agreements with all sorts of Microsoft competitors, including America Online and Netscape.

In addition, InfoSpace and DejaNews announced today that they cut a similar deal, where the two will integrate each other's services into their sites.

"InfoSpace is committed to reaching as many Internet users as possible by making its services available on popular Web sites and information appliances," stated Naveen Jain, president of InfoSpace. "We believe DejaNews discussion groups will give InfoSpace users an excellent method for finding answers and exchanging information and ideas."

Sound familiar?