Microsoft, Yahoo finally reach search deal

So after months and months of wheelin' and dealin', Microsoft and Yahoo have finally come to terms on a partnership that will take them both closer to Google in terms of market share. As CEO Steve Ballmer puts it, "a stronger No. 2." (Ahem.)

In a nutshell: If you go to the Yahoo search page, you'll see the Yahoo search page. But Microsoft's Bing will be doing the heavy lifting. Same goes at all Yahoo owned and operated sites. Data sharing between the two companies will be "the minimum necessary to operate and improve the combined search platform." And 88 percent of the search revenue on Yahoo-branded sites stays with Yahoo for the first 5 years of the 10-year agreement. Bottom line is Yahoo's anticipating somewhere in the neighborhood of $275 million a year once things are approved and up and running.

At this point, it's tough to say what, if anything, this may mean for Windows Mobile, other than changing up search options. But you can read the entire press release here. After the break, the key terms of the deal as put forth by Microsoft, and video from Ballmer and Yahoo CEO Carol Bartz (both of whom will be on a conference call later today). And for the truly hard-core, the two companies have set up a joint Web site here.

Key terms of the deal

• The term of the agreement is 10 years.
• Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms.
• Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.
• Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.
• Each company will maintain its own separate display advertising business and sales force.
• Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.
• Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.
• Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
• Yahoo! will continue to syndicate its existing search affiliate partnerships.
• Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.
• At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million.
• The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.