​Yahoo squeezes more out of Microsoft in new search deal, filing reveals

Yahoo and Microsoft can walk away from their 10-year search deal with just four months' written notice.
Written by Liam Tung, Contributing Writer on

Yahoo CEO Marissa Mayer appears to have secured better terms for the company as part of its recently amended search agreement with Microsoft.

An 8-K document that Yahoo filed with the Securities and Exchange Commission on Monday has revealed a few more of the changes that Yahoo and Microsoft made last week to the search and advertising pact the companies signed in 2009.

As ZDNet reported yesterday, the new terms allow either Microsoft or Yahoo to terminate the search deal with written notice. Previously, from when the deal started in 2010, Yahoo could only walk away if certain revenue targets weren't met. As of October 1, either party can give four months' notice and terminate the deal.

Yahoo has also carved out space for itself to potentially develop its own search capabilities, now that it is no longer dependent purely on Microsoft for algorithmic and paid search services on the desktop. Yahoo has agreed to request paid search results - ie Bing ads - for 51 percent of search queries Yahoo users make from the desktop.

Bing was Yahoo's non-exclusive supplier on mobile, but as the filing sets out, the company now has more flexibility here too.

"Yahoo will now have the ability in response to queries on both personal computers and mobile to request algorithmic listings only, paid listings only or both algorithmic and paid listings from Microsoft. To the extent Yahoo requests algorithmic listings only or requests paid listings but elects not to display such paid listings, Yahoo will pay Microsoft serving costs but not a revenue share. In other cases and with respect to the Volume Commitment, Yahoo will pay Microsoft a revenue share," the company said in the filing.

Yahoo is also taking a larger slice of revenue from Bing ads that run on Yahoo properties, with Yahoo's share now calculated at 93 percent and applied before deductions are made for the share split with affiliate sites. For the first five years of the deal, Yahoo got 88 percent, which increased to 90 percent this February. However, that share was calculated after deductions for affiliate sites and certain Microsoft costs.

Yahoo announced the updated agreement last Friday, saying it would give the company greater "flexibility to enhance the search experience on any platform, since the partnership is non-exclusive for both desktop and mobile".

The agreement updates a deal struck in 2009 between then-CEO of Microsoft Steve Ballmer and Yahoo's former chief Carol Bartz, which saw Yahoo outsource much of its search to Microsoft, leaving Yahoo to focus on ads.

While the partnership hasn't always been smooth sailing, it has delivered as much as a third of Yahoo's total revenue.

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