Microsoft And Yahoo Search Deal May Be Back On

In a sign that Microsoft isn’t putting all of its search engine eggs in its Bing basket, executives from Redmond are working to hammer out a search and online advertising deal with Yahoo.

Microsoft may pay Yahoo several billion dollars to take over its search advertising business and guarantee certain payments back to Yahoo, according to AllThingsDigital blogger Kara Swisher. There is a display advertising element to the deal, with Yahoo taking the lead in selling premium advertising for the companies.

Citing a financial analyst, 24/7 Wall Street said Yahoo would get $3 billion ($1.8bn) upfront, along with 11 percent of the revenue that its searches provide after traffic acquisition costs in each of the first two years. That figure would go to 90 percent in the third year.

Microsoft declined to comment for this story. Yahoo did not respond to comment as of this writing.

The move comes after comScore claimed Microsoft posted a .04 percent gain in search market share in June on the strength of Bing, its retooled search engine.

However, with Bing garnering positive reviews from search engine experts, analysts were torn on whether Microsoft would ever rekindle its fire for Yahoo, which it tried to acquire in February 2008 for $44.6 billion, triggering a major clash between Microsoft and the Yahoo board of directors.

Some analysts believe that if Bing proves increasingly successful, it will mean Microsoft doesn’t need Yahoo, which holds 19.5 percent of the market to Bing’s 8.4 percent, according to the June 2009 stats from comScore.

Others, such as BroadPoint AmTech’s Benjamin Schachter, claim a successful Bing could push Microsoft to approach Yahoo again. Schachter wrote in a 15 July research note: “we believe any continued success of Bing may actually increase the odds of a Microsoft/Yahoo tie-up.”

Should Microsoft and Yahoo join forces, even as just partners, they would account for nearly 30 percent of the worldwide search market share, still less than half of Google’s 65 percent share.

Now a deal appears imminent, according to 24/7 Wall Street. Swisher was less confident in that characterization after talking to her sources, but wrote: “If all goes well, the deal could be announced within the next week, sources at both companies said.”

Several Microsoft executives are meeting with Yahoo in Silicon Valley to strike a deal, the latest step in a mating dance that has had Microsoft and Yahoo circling each other for nearly two years, Swisher said.

Microsoft’s Yusuf Mehdi, senior vice president of the Online Audience Business Group, Satya Nadella, senior vice president search, portal and advertising, and Qi Lu, president of the Online Services Group, and others are working out the deal with Yahoo executives. Interestingly, Lu was a major force behind Yahoo’s search engine efforts before joining Microsoft last summer.

Microsoft CEO Steve Ballmer, who was present for most of the negotiations with Yahoo when the two companies were last bargaining, is involved in the negotiations.

No matter what deal Microsoft and Yahoo put in place, the companies will still have an uphill battle versus Google, whose CEO Eric Schmidt made it clear during the company’s second-quarter earnings call 16 July that search is still the company’s core focus.

“Search is still an unsolved problem,” Schmidt said on the call. “Even though Google is working very, very hard … to make search more social, more personal, more intelligent … users are now coming to us with increasingly more complex questions and queries. We’re getting much better at finding the exact information people are looking for.”