Yahoo Wants Out of Microsoft Search Contract; Would Rather be with Google
May 8, 2013 12:49 PM
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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.
The Wall Street Journal
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RE: I remember in the old days
5/8/2013 2:59:48 PM
The difference was that Yahoo tried to organize the Internet by hand. You had to navigate an organizational tree within Yahoo's website (e.g. business -> industry type -> geographical location -> list of companies). If you wanted people to be able to find your website within Yahoo, you had to submit it in the appropriate location in the tree, and someone at Yahoo had to approve it.
Google eschewed human input entirely (aside from making the website) and went with automated generation of the relationship between keywords and sites. Yahoo's approach worked when the Internet was small and just a handful of schools and companies. But Google's approach scaled much better. They took the lead while Yahoo scrambled to build their own automated search engine.
(Google wasn't the first automated search engine either. The earliest I remember was AltaVista. But Google's algorithms were much better, so its search results were much more relevant to what you were looking for.)
"I want people to see my movies in the best formats possible. For [Paramount] to deny people who have Blu-ray sucks!" -- Movie Director Michael Bay
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