Yahoo Wants Out of Microsoft Search Contract; Would Rather be with Google
May 8, 2013 12:49 PM
But Microsoft recently extended the contract's revenue guarantee
Yahoo wants to get out of
a search contract it has with Microsoft
in favor of a more profitable venture with Google, but it may have to hold on a while longer.
Yahoo is currently locked in a 10-year search contract with Microsoft, which started in 2010. Under the contract's terms, Yahoo uses Microsoft's Bing search engine for search results on Yahoo sites. They have also coupled each of their search-advertising setups. As part of the deal, Microsoft receives 12 percent of the revenue Yahoo generates from search ads -- and Microsoft guarantees a certain amount of revenue for every search query on Yahoo's sites.
This revenue guarantee expired on March 31, 2013, but Microsoft extended for another 12 months on April 30. Unlike the previous revenue guarantees from Microsoft, this extension affects only the United States.
Microsoft's revenue guarantee is worth about $12 million to $15 million per quarter.
However, Yahoo said wants out of this contract in a regulatory filing Tuesday, and the new extension has made this a bit more difficult. Yahoo will likely have to wait until mid-2015 to kill the contract, which is the halfway point.
While Yahoo's search revenue managed to increase 6 percent to $409 million in the first quarter of 2013 (compared to the first quarter of 2012), Yahoo wants out of the Microsoft deal in order to possibly enter into another contract with Google.
Google could provide Yahoo with its Web search and search-advertising services, which are much more lucrative than Bing. Google and Yahoo tried to make this work in 2008, but the U.S. Department of Justice shot it down for antitrust purposes. However, Google and Yahoo could revamp the former pitch in an effort to pass regulatory issues.
The only way Yahoo wouldn't have to wait until at least 2015 to exit the Microsoft contract is if Microsoft sells Bing or revenue-per-search falls below a certain level.
Either way, it doesn't look like Yahoo will go back to developing its own search technology.
In February of this year, Yahoo CEO Marissa Mayer said that the company's search partnership with Microsoft is not delivering.
"One of the points of the alliance is that we collectively want to grow share rather than just trading share with each other," Mayer said at the Goldman Sachs Technology and Internet Conference in San Francisco.
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