Yahoo Wants Out of Microsoft Search Deal

Exit signYahoo and Microsoft may have just extended their revenue-per-search guarantee, but Yahoo has apparently been trying to escape its 10-year search deal with Microsoft in order to join forces with Google, according to reports.

Yahoo and Microsoft struck their search agreement in July 2009 with expectations that the partnership may allow both firms to rival Google in the search market. Under the terms of the deal Microsoft’s Bing powers Yahoo search, while Yahoo uses its solid relationship with advertisers to be the salesforce for both companies.

However a Bloomberg report said Yahoo CEO Marissa Mayer has been unsuccessful in her attempts to get out of the agreement for almost a year.

According to the report, Mayer has already met with her previous employer Google and agreed to enter an alternative search partnership if the Microsoft agreement can be concluded. Yahoo was rumored to be seeking a switch to Google even before Mayer was CEO.

As the Wall Street Journal reported:

Under the deal, Microsoft gets 12% of the revenue Yahoo generates from search ads that appear next to search results on its websites. Because the combined search-ad system was expected to face challenges initially, Microsoft guaranteed a certain level of revenue for every search query done on Yahoo’s sites. The regulatory filing says the revenue guarantee expired on March 31, but Microsoft on April 30 agreed to extend it for an additional 12 months.

Jordan Rohan, an analyst at Stifel Nicholas & Co., estimated that Microsoft’s revenue-per-search guarantee is worth about $12 million to $15 million per quarter.

Microsoft’s chance to remove its exclusivity won’t arrive until February 23, 2015, five years into the deal. However should Microsoft decide to continue with its current arrangement, it will start seeing 17 percent of revenue generated.

The deal terms between Microsoft and Yahoo mean that the partnership can only be called off if either Microsoft closes or sells Bing, or if Yahoo’s revenue per search falls below 40 percent of Google’s.

Yahoo’s search revenue grew 6 percent year-over-year, to $409 million, in Q1 of this year.

A Yahoo spokesperson said in a statement: “Microsoft is an important partner, and we continue to work together to grow search share and improve monetization.”

While a Microsoft spokesperson said the company is “working closely with Yahoo to further strengthen our partnership and deliver real choice and value to advertisers and consumers.”

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