Microsoft and Yahoo: Still a few surprises

In spite of all the pre-announcement leaks leading up to the July 29 Microsoft-Yahoo partnership -- there were still a couple of surprises about the terms of the deal.

For one, Yahoo isn't getting any kind of upfront cash payment from Microsoft, something a number of early reports had indicated was an integral (though, over time, diminishing) part of the months-long negotiations between the companies.

The actual details around how the two plan to combine their search assets also ended up looking different than many had anticipated.

Almost anyone who got a leak about the Microsoft-Yahoo deal seemed to be expecting Yahoo to "outsource" its search to Microsoft. And that prediction came to pass. Even though Yahoo plans to try to maintain the Yahoo search brand as much as possible, the reality is that Yahoo's search is going to be "powered by Bing" three-plus months following the regulatory approval of the deal, assuming that happens.

But what many industry watchers were not expecting was Yahoo to license its core search assets back to Microsoft -- which they are doing on an exclusive basis for a period of ten years, even though Yahoo retains ownership of those assets.

I had a chance to ask Yusuf Mehdi, Microsoft Senior Vice President, Online Audience Business Group, and Hilary Schneider, Yahoo Executive Vice President, exactly what that arrangement will mean to Microsoft's Bing Web-search engine.

The pair emphasized that Microsoft and Yahoo are planning to work together to build a single search platform, using the best of both companies' search technologies.

So does this mean it's back to the drawing board for Bing? If not, what will it mean to incorporate and integrate Yahoo search code into Microsoft's search engine?

"Until we can look at the (Yahoo search) code and understand it, we can't say specifically yet" what we intend to do, Mehdi said. But it's more likely that Microsoft will be looking to make use of some of Yahoo's peripheral search technologies and projects, like BOSS (Build Your Own Search Service) and Search Monkey, rather than doing any major shifts of algorithmic vision with Bing, he seemed to indicate.

As to Yahoo maintaining the rights to its core search technologies -- even though Microsoft will be looking at the code and making use of it, where appropriate -- Schneider emphasized that Yahoo is most interested in retaining the "UI (user interface) experience for its site." She said the companies will be sharing employees and "in the long term, the DNA created" so that they will end up with "a single (search/advertising) platform."

Another aspect of today's deal which surprised a number of pundits was the fact that display advertising was excluded from the final contract drawn up by the two former search adversaries. For a while now, it has been rumored that Yahoo was going to be selling display advertising for Microsoft. Instead, Yahoo's salesforce will be the one selling the Microsoft-Yahoo search and advertising platform to advertisers, but Microsoft will continue selling its own display ads, as will Yahoo.

Schneider said the reason display advertising was left out of the final contract was because there are "a lot more complexities associated with it" than Microsoft and Yahoo felt was appropriate for their customers.

"We wanted to enter into a partnership that kept things simple," she said.

(It's questionable how simple a partnership is that ended up with a 100-or-so-page playbook to outline it, as Microsoft CEO Steve Ballmer joked earlier today. But that's Microsoft and Yahoo's story and they're sticking to it.)

Mehdi and Schneider said it also is too early to be talking specifics about how they plan to start integrating their search and ad platforms -- a job they are expecting to take a total of 24 months from the time the partnership passes regulatory scrutiny. A number of company watchers have noted that, technologically and managerially, the integration won't be trivial, given that Microsoft and Yahoo run on different servers and have built their respective platforms around competing technologies, in a number of cases.

Mehdi said the two companies have decided that, at least in the near term, to run Microsoft's and Yahoo's search and ad platforms in parallel before deciding how best to move users and advertisers to the new Microsoft-Yahoo systems.

"Yahoo already has done one big migration by moving its advertisers to (its online ad system) Panama," Mehdi said, so that kind of expertise already is in-house.

In addition, he said, Microsoft Online Services Division President Qi Lu -- who joined Microsoft from Yahoo just a few months ago -- knows the Yahoo code base quite well, which should give Microsoft and Yahoo a good vantage point to begin the search/advertising integration outlined in today's deal.

Were there any other surprises -- positive or negative -- that you noticed about today's Microsoft-Yahoo deal?