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Microsoft extends revenue guarantees to Yahoo

The software giant's AdCenter hasn't produced the revenue per search that Yahoo expected when it signed a 2009 search deal. So Microsoft has extended the deal another year.

Yahoo disclosed today that Microsoft extended guarantees for another year for shortfalls in the expected revenue from its 2009 search agreement.

When the companies signed the pact, the software giant offered up revenue guarantees to help seal the deal. Those were set to expire March 31, but will now last through March 2013, according to the company's third quarter earnings release.

Microsoft's AdCenter technology, the system for buying and delivering online ads, has never produced the sort of revenue that Yahoo anticipated. So Microsoft has remitted quarterly payments to Yahoo to make up the difference. In Yahoo's third quarter, Microsoft paid the company $53 million under the terms of the deal.

Yahoo's interim chief executive, Tim Morse, said the company worked to extend the deal because it was hearing "a lot of discomfort" from investors over the company's ability to generate the expected revenue.

"What we wanted to do is insert as much financial certainty into the process as possible," Morse said during the quarterly earnings call this afternoon.

In Yahoo's July earnings call, then-CEO Carol Bartz put the blame squarely on Microsoft, pointing to "technology limitations" in AdCenter. And Microsoft has said that it is working on improving the revenue adCenter is able to generate from each search.

On the previous earnings call, Bartz said the companies expected to close the rest of the gap before the guarantees go away. This afternoon, Morse said he didn't know if the companies would be able to meet that timetable.

"I don't know the answer on that," Morse said on the conference call. "The teams are working really hard on that."

A Microsoft spokesman confirmed the extension of the guarantee but offered no guidance on when the company expects AdCenter to generate enough revenue to eliminate the need to pay the revenue guarantees.