Yahoo gets 'increased flexibility' in renewed Microsoft search pact

Yahoo says that it will be able to "enhance the search experience" across desktop and mobile, and the companies will share in ad sales duties.

Don Reisinger
CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
4 min read

Former Yahoo CEO Carol Bartz and former Microsoft CEO Steve Ballmer sign their search pact in 2009. Yahoo/Microsoft

The odd couple of search -- Microsoft and Yahoo -- have tweaked their partnership to give Yahoo more wiggle room.

The amended agreement, signed by Microsoft CEO Satya Nadella and Yahoo CEO Marissa Mayer, has two main elements. First up, Yahoo will now be allowed to have more "flexibility to enhance the search experience" across mobile and desktop devices. In addition, the companies have modified their handling of ad sales, with Microsoft now exclusively handling the Bing ads on Yahoo Search and Yahoo continuing to sell ads through its own Gemini ads platform.

"We firmly believe that search is still in its infancy -- and this partnership marks the next chapter in our exploration of how to make search truly great," Mayer said in a statement Thursday.

The update to the search deal comes six years into a 10-year pact between the companies. In 2009, the companies' then-CEOs -- Microsoft's Steve Ballmer and Yahoo's Carol Bartz -- signed a deal that would see Micorosoft's Bing platform power Yahoo search. In return, Yahoo would be the exclusive sales force for ads and would receive a significant sum each year to be the brains behind Yahoo search.

At the time, both companies said that the deal represented a "significant opportunity" and some analysts suggested it was an attempt on Microsoft's part to get closer to Google on search usage and drive more revenue through online advertising. As of March, Microsoft's Bing owned 8.1 percent of the worldwide search market, just topping Yahoo's 7.7 percent share, according to data from research firm NetMarketShare. Google, the companies' chief competitor, owned 62.3 percent of the market.

Yahoo could, however, see its share grow in the coming years. In November, one of the world's most popular browsers -- Mozilla's Firefox -- tossed aside Google Search as its default browser, tapping Yahoo for the position instead. In February, StatCounter, another company that measures search market share, said that Yahoo saw an uptick in searches following the Firefox deal.

Under the terms of the original deal, Yahoo would get 88 percent of the search revenue generated by its sites during the first five years. Though it was unclear at the time just how significant that would be to Yahoo, a regulatory filing in 2013 showed that 31 percent of the company's revenue in just one quarter in 2013 was generated through its Microsoft partnership. Microsoft has been less forthcoming with its revelations on revenue generated through the deal.

The new deal between the companies comes at a crucial time for both firms. Mayer, who came to Yahoo from search giant Google, is in the process of transforming the company into one that's friendlier to mobile devices and more capable of generating revenue off those products. Mayer is also keenly aware of Yahoo's slumping position in the online world, which has driven her to make dozens of major acquisitions over the years.

Nadella, meanwhile, has refocused Microsoft on services and mobile, and becoming platform-agnostic with its many platforms, including Office. Under Nadella's leadership, Microsoft has attempted to make clear that it no longer views itself as a software company, but rather a cloud services and mobile firm that provides software.

The company demonstrated that when it announced that it would offer Windows 10, its upcoming operating system, for free. Microsoft has historically sold new Windows versions for hundreds of dollars to drive revenue and profits. Nadella sees his company's future in other areas.

Few details on the new Yahoo-Microsoft agreement were released. In a statement on her company's blog Thursday, Mayer would only say that the deal "opens up significant opportunities in our partnership, enabling both partners to improve the search experience, create value for advertisers, and establish ongoing stability for partners."

That said, Yahoo did note that the original structure of the companies' deal, including how Microsoft would handle search and the revenue-sharing agreement between the companies -- "remains unchanged with today's updates."

That ingredient -- that the revenue-sharing hasn't changed -- could be an important piece of the puzzle for Yahoo. In a statement to CNET on Thursday, research firm eMarketer said that Yahoo is having some trouble holding its ground in the worldwide search advertising space. The company's share of the global search ad revenue market will reach 2.3 percent in 2015, down from its 2.5 percent share in 2014 and 2.9 percent in 2013. Microsoft, meanwhile, is expected to maintain its search ad share at 4.2 percent this year, matching last year's figure and up from 3.7 percent in 2013. The companies will therefore combine to own 6.5 percent of the $81.6 billion search ad market, according to eMarketer.

Neither Microsoft nor Yahoo commented beyond what was announced in their joint statement.

This story has been updated throughout the morning.