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'Microsoft on verge of Yahoo search deal'

business Updated: Jul 29, 2009 19:01 IST
Microsoft on verge of Yahoo search deal

Microsoft Corp appears to have finally locked up rival Yahoo Inc in a long-awaited Internet search partnership aimed at narrowing Google Inc's commanding lead in the most lucrative piece of the online advertising market.

The details of the Microsoft-Yahoo alliance are expected to be announced Wednesday, according to The Wall Street Journal and a technology blog affiliated with the newspaper, All Things D, which both cited undisclosed people familiar with the discussions. Both Redmond, Washington-based Microsoft and Sunnyvale, California-based Yahoo declined to comment late Tuesday. Microsoft has an added incentive to unveil the terms of the partnership within the next day because its annual meeting with analysts is Thursday.

It would make sense for Microsoft to use that forum to explain its rationale for the Yahoo alliance, said Brigantine Advisors analyst Colin Gillis.

Based on the published reports, the deal may not be as far-reaching as many investors envisioned.

Yahoo won't get any cash payments in advance from Microsoft, according to the reports. That development could disappoint investors. Yahoo Chief Executive Carol Bartz had pledged she would join forces with Microsoft only for "boatloads of money." Instead, it appears the two companies will split the revenue generated from the search ads on their Web sites. The reports indicated that Yahoo will handle the ad sales and customer service while Microsoft's technology will power the search results and identify the appropriate commercial results to display. Microsoft, the world's largest software maker, has been courting Yahoo for several years in hopes of expanding its share of the lucrative online search market.

After being repeatedly rebuffed, Microsoft launched an unsolicited bid to buy Yahoo in its entirety. With co-founder Jerry Yang at the helm, Yahoo put up such staunch resistance that Microsoft withdrew its last offer of $47.5 billion, or $33 per share, nearly 15 months ago.

Yahoo shares have been sagging ever since, although they have been rising in recent weeks in anticipation of a Microsoft search deal. The stock gained 22 cents to close Tuesday at $17.22, then climbed another 17 cents in extended trading.

Microsoft is counting on Yahoo's search engine, which ranks No 2 with a worldwide market share of 8 per cent, to pose a more formidable challenge to Google, which holds 67 per cent of the global audience, according to the most recent data from research firm comScore Inc. In the United States, Google's share is 65 per cent compared to roughly 20 per cent for Yahoo.

Despite spending billions to upgrade its search engine, Microsoft still held just a 3 per cent share worldwide and 8 per cent in the US. As part of its latest improvements, Microsoft renamed its search engine Bing. It's unclear whether Yahoo will be required to promote the Bing brand on its highly trafficked Web site as part of a deal with Microsoft.

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