Can Yahoo really wriggle out of its Microsoft search partnership?

Can Yahoo really wriggle out of its Microsoft search partnership?

Summary: The 10-year Microsoft-Yahoo search pact continually seems like it's threatening to unravel. But will that realistically happen? If so, how -- and when?

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Microsoft's 10-year search pact with Yahoo, approved by regulators four years ago this month, is either shaky or stabilized -- depending on whether you side with Yahoo or Microsoft.

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On the shaky front, Yahoo management has made no bones about the fact it would love to find ways to back out of the deal. Back in October 2013, Yahoo officials attempted to use Microsoft's CEO transition as an excuse to put the brakes on its move to Microsoft's Bing Ads technology in Hong Kong and Taiwan. Yahoo wants to reestablish itself as a major player in search, as CNET and Re/code have both reported, but it's hard for the company to do so, given its pact with Microsoft resulted in Yahoo outsourcing much of its search to Microsoft with Bing.

On the stabilized front, Yahoo seemingly is getting a pretty decent chunk of change from its Microsoft arrangement. A reported December 2013 filing by Yahoo with the U.S. Securities and Exchange Commission revealed that Yahoo garnered 31 percent of its quarterly earnings from Microsoft -- substantially more than the 10 percent Yahoo had claimed publicly.

Microsoft execs have attempted to throw bones to Yahoo, specifically around revenue-per-search (RPS) guarantees, to convince management there that the Yahoo-Microsoft partnership will pan out financially for Yahoo. Microsoft and Yahoo signed last spring an agreement via which Microsoft would provide Yahoo with a guaranteed RPS rate that lasted through March 2014.

Dave O'Hara, the Chief Financial Officer for Microsoft's Applications and Services unit, characterized Microsoft's relationship with Yahoo as "good" during an investor call organized by UBS' Brent Thill on December 19.

"(W)e feel like that (Microsoft-Yahoo) partnership is in a good spot," O'Hara said during the call (based on a transcript I have of his remarks). "It was, you know, bumpy for a couple of years. But ... for the first couple of years as we got things going, but we feel like we’re at a good rhythm now."

O'Hara said that a lot of "friction" has been removed from the RPS model by Microsoft and Yahoo agreeing on a set RPS guarantee figure.

The next milestone in the Microsoft-Yahoo search partnership will be in February 2015, which is the five-year mark. As SearchEngineLand has previously reported, that's the first point where there's opportunity for Yahoo to try to get out of the deal.

At that five-year mark, O'Hara said, the two companies will take a "deeper look and see how we're performing relative to the market."

"(I)f you look at the deal, because it was a ten-year deal, what we tried to do is just build in some clauses that, you know, essentially made sure that both parties continue to invest for the long haul; that both parties continue to perform," O'Hara said. "And so that’s what the five-year mark really is; is it’s a look - just take a deeper look and see how we’re performing relative to the market. And if we are, great. If we aren’t, then, you know, they have some options they can pursue."

Microsoft characterizations aside, Yahoo seems intent on looking for search loopholes.

Re/code reported in January 2014 that there are two Yahoo initiatives -- codenamed "Fast Break" and "Curveball" -- dedicated to attempting to reestablish the company as a player in search. According to Re/code's Kara Swisher, these initiatives focus on stream, shopping and (mobile and contextual) search. CNET reported in December 2013 on Yahoo building a mock-up of a newsfeed, as well as on stealth projects around search personalization

It's worth noting that even though Microsoft is providing search results for Yahoo as part of the partnership, Yahoo did maintain the rights to its own core search technologies when the duo signed their pact in 2009.

Topics: Big Data, Emerging Tech, Microsoft

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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54 comments
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  • Seriously?

    Yahoo is still around? I thought they went the way of AltaVista.
    Sir Name
    • if you are going to do snark

      then at least know something about what you are talking about.
      Yahoo is always in the top 10 , if not the top, visited web site on a weekly basis.
      chips@...
      • It's never the top

        In the top ten, yes, but never number one.
        otaddy
        • Um, actually, yes it has been

          As recently as August, 2013, it has taken the number one spot.
          Mac_PC_FenceSitter
          • i find out hard to believe

            That Facebook twitter or google got best out by Yahoo... Do you have a source for that?
            dosmastr@...
          • It's true

            Yahoo is huge.
            x I'm tc
          • Comscore

            Check out their Dec2013 report for desktop only users. Yahoo is number 1, followed closely by Google.
            otaddy
          • I stand corrected

            If you look at desktop only users, Yahoo does indeed come out on top sometimes as it narrowly beats Google.
            otaddy
    • If ignorance is bliss ...

      ... you must be the happiest person on Earth.

      Yahoo beat out Google in the US: http://www.slashgear.com/yahoo-tops-comscore-list-of-most-visited-websites-via-desktop-for-december-21313900/
      JoeBobBriggs
      • Yeah during the december yahoo got more new visitors

        Yeah during the december yahoo got more new visitors, But does is stayed that way, did they keep up the phase?
        Mac_Win
  • Meliisa lied?

    I recall when the 10% comment was made that a lot of Yahoo financials followers went "huh?". The 10% figure didn't make sense.
    Interesting that when they had to tell the whole story under penalty of falsifying data that they admitted it was much more than 10%.
    But does this really make a difference to Microsoft?
    chips@...
    • What you fail to realize

      Melissa is a pretty girl. Still young and attractive. Teenagers find her pretty. She is doing pretty well and I would but my money on her. She seems to know what she is doing as CEO of Yahoo.
      Tim Jordan
      • If I remember rightly...

        ...her name is "Marissa", but you can call her Mrs. Mayer.
        John L. Ries
      • What you fail to realize, Tim

        is that no matter how good looking someone is, if you lie to investors or the SEC, you go to jail.
        William.Farrel
      • Being Pretty?

        Bet money on her because you think she seems to know what she's doing as CEO of Yahoo not because she is pretty.

        Of course I agree that she is beautiful. Although the Vogue spread was tastefully conservative, I fail to see the point.
        robradina@...
        • Beauty is an asset

          But an executive still needs management skills if she is to be effective. We want female professionals to look pretty (and male ones to look handsome, but that's not generally an issue); it would be ridiculous if a plain appearance was a prerequisite for career success.
          John L. Ries
      • Yes but..

        In her day, so was Carly Fiorina, and we all know how that turned out. Also does Kim Polese come to mind, another pretty girl who flamed out. I have nothing against pretty ladies in tech companies and business period, but a level of competence would be nice.
        DAMANgoldberg
  • Like Microsoft would say anything else. Yes, Yahoo is in a "good place"...

    Limited to what Microsoft allows.
    jessepollard
    • Like Jesse?

      Would Jesse let anything even moderately neutral typed out of his keyboard?
      mm71
      • Microsofts history with its "partners" is quite clear.

        They must never ever be working in an area that Microsoft might decide they want. And if the partner is actually successful - it is more likely to do things to subvert that "partner" for its own gain.
        jessepollard