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Google, the Verb, Versus the Bing Ding

Yahoo is going to use Microsoft’s newfangled Bing search engine on its web sites

Microsoft's long pursuit of Yahoo has finally culminated in a 10-year deal.

It's not the deal people expected, which is why Yahoo stock took a 12% fall in the hours after the companies laid it out Wednesday.

Yahoo is going to sell search ads for the both of them. It's going to use Microsoft's newfangled Bing search engine on its web sites. And it's licensed its search technology to Microsoft to integrate.

They expect to get regulatory approval early next year, which Google will attempt to block, and it will take about two-and-half years before the new partners are operating at the top of their combined game.

Microsoft will pay Yahoo 88% of the search revenues generated by its sites for the first five years of the agreement.

There's no "boatload of money" upfront for Yahoo like CEO Carol Bartz suggested there would be a few months ago. She says she traded it for a sustainable TAC. "Having an upfront payment," she said, "didn't really help us from an operating standpoint."

"Boatloads of money" has now been translated into "boatloads of value for Yahoo."

The contract doesn't cover display ads, a province the companies will continue to compete in.

But Bing will get the traffic Microsoft wanted.

Advertising Age has observed that the arrangement eliminates Yahoo as a Microsoft rival and consolidates ~30% of the U.S. search market on Microsoft's widgetry. Bing's early results suggest it's eating into Yahoo's market share, a point that may have ultimately persuaded Yahoo.

Google's still got 65% of U.S. traffic, 92% in Western Europe according to Microsoft CEO Steve Ballmer, maybe 67% worldwide. The great question now is whether Bing and friends can ding that commanding lead any.

Dubbed a "decision engine," Bing is supposed to provide better results - or will with more traffic to analyze. As part of the deal its name will appear on the Yahoo results page where it will say "powered by Bing."

It's supposed to tickle Yahoo's share of search advertising. Advertisers are supposed to be attracted by the improved scale of the combined companies and the simplicity of working with a single platform and sales operation.

Since Bing was introduced in June with a reported $100 million ad campaign, Microsoft still only has a thin 8.4% of the U.S. market.

Yahoo will also save the money it would have cost to continue to support its own search engine, money it can put into sales. It anticipates saving $200 million in CAPEX and $500 million in OPEX a year.

Certain Yahoo personnel will shift to Microsoft and some will simply lose their jobs, Bartz said.

The arrangement is a far cry from Microsoft's original proposal that it take over Yahoo's search and search advertising - a year ago it said it would pay a billion dollars upfront to climb into bed with Yahoo - and may be the result of antitrust concerns. It's further still from the $47.5 billion acquisition bid Microsoft put on the table last year.

The complex talks reportedly broke down briefly last week because Yahoo wanted hundreds of millions of dollars upfront plus revenue guarantees potentially worth billions over the life of the deal.

It also wanted more revenue for search that originates on its site and leads to a purchase and for clicks on ads. And there were issues over Bing branding and the amount of search data Yahoo would get.

Yahoo emerged from the negotiations with limited access to the search data.

The pair expects to push paperwork to the regulators next week. It will argue that their alliance heightens competition.

It is not expected to set off the kind of fireworks that the DOJ-squelched "we'll sue you if you do" Google-Yahoo deal did but it won't go through without a fight. Microsoft raised regulatory antennae to the Google-Yahoo deal and Google will return the ball. And an Obama Justice Department is likely to paw over the thing.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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