Match made in web heaven?

Microsoft and Yahoo! have finally exchanged vows and committed to a deal that will change the world of search

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By  Vineetha Menon Published  August 3, 2009

Microsoft and Yahoo! have finally exchanged vows and committed to a deal that will change the world of search as we know it.

The two tech giants have been in a tumultuous relationship since early last year with Microsoft first offering $44.6 billion to buyout Yahoo! in February, which the latter unceremoniously rejected amid plans to enter advertising deal with search behemoth Google. But when Google tossed aside Yahoo! in November , ex-CEO Jerry Yang called for Microsoft to reconsider its takeover plans. Like a spurned lover, Microsoft rebuffed any reconciliation attempts until Yahoo! gave its reins over to investor Carl Icahn and newly-appointed CEO Carol Bartz.

Bartz and Microsoft’s CEO Steve Ballmer took it forward from there, with both actively engaging in search talks for months before reaching an agreement and going public on July 29th.

The ten-year deal will see Microsoft power Yahoo!’s search, while Yahoo! in turn will take over search sales for both companies. While the deal between the two might not have been as financially dramatic as last year, it certainly provides a stronger front in the fight for search market share against Google.

In an obvious dig against the goliath, a joint statement by Microsoft and Yahoo! said the deal meant that "advertisers no longer have to rely on one company that dominates more than 70 percent of all search".

Like in any relationship, it can’t always be about the money. According to the fine print, Microsoft will compensate Yahoo! for its services through a revenue-sharing scheme – Microsoft will pay traffic acquisition costs (TAC) at a rate of 88% of overall search revenue generated during the first five years of the agreement, while Yahoo! can continue to syndicate its existing search affiliate partnerships.

Full implementation of the Microsoft search technology on Yahoo! is expected to take about 24 months once the companies get the green light of approval from regulators, which is anticipated by early 2010. When it does finally happen, Yahoo! is predicting happy numbers including an annual operating income of about $500 million and expenditure savings of nearly $200 million.

Analysts have been relatively upbeat about the deal, with Ovum analyst Andrew Frank claiming that the deal “…sharpens the distinction between Microsoft’s ‘technology company’ role and Yahoo!’s ‘media company’ role, making it harder for Google to play both against their alliance.”

A new website jointly launched by Microsoft and Yahoo! screams out the benefits of the new partnership - Real Choice. Better Value. More Innovation - to its customers and advertisers. But Google has remained silent through it all. And that, in my opinion, says a lot.

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