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Big boost for Bing in Yahoo-Microsoft pact

But Google remains the Goliath of the $12 billion Internet search business and is likely to stay there for some time.

By Michael B. FarrellStaff writer / July 29, 2009

A sign outside Yahoo headquarters in Sunnyvale, Calif. on Wednesday. Microsoft Corp. and Yahoo Inc. have finally entered into a partnership, capping a convoluted pursuit that dragged on for years and setting the stage for the rivals to make an all-out assault against the dominance of Google.

Paul Sakuima/AP

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San Francisco

Two months after Bing bounced onto the Internet, Microsoft’s rebranded search engine leaped a lot closer on Wednesday morning to posing a serious challenge to the online Goliath Google.

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In a deal with Yahoo, Bing will soon become its search provider, gobbling up a huge chunk of Web traffic in one bite. In exchange for letting Microsoft handle Yahoo searches, Yahoo will get 88 percent of the search-generated ad revenue from its sites in the first five years of the 10-year pact.

That could bring in as much as $500 million to the pioneering Internet company that in recent years has been struggling to reposition itself and hand Microsoft Yahoo’s 20 percent share of Internet search traffic. Still, the combination of Yahoo (the No. 2 search engine) and Microsoft (No. 3 with 8.4 percent) is a long way from reversing Google’s 65 percent share.

The deal promises to be a boon for both companies (if it’s approved by federal regulators) as Microsoft wants to pry Internet users away from Google, and Yahoo is interested in focusing on building up its media sites from finance to sports. But so far Microsoft appears to be coming out ahead of this deal connecting Silicon Valley with Redmond, Wash.

While Yahoo Chief Executive Carol Bartz said the pact promises a “boatload of cash,” it saw shares drop 8 percent on news of the partnership. Meanwhile, software giant Microsoft saw a slight uptick in the price of its stock.

Microsoft has long had its sites set on Yahoo in its quest to get into the lucrative search business. Last year Microsoft attempted a $47.5 billion takeover of the online company. That bid was eventually withdrawn and was met with antitrust complaints from Google.

It’s unknown what sort of defense, if any, Google will mount to the Yahoo-Microsoft pact, which could build a powerful and wealthy search engine-advertising venture and chip away at Google’s dominance in the $12 billion a year search engine business.

But as Bing is elbowing its way into Google’s turf, Google has been making inroads into Microsoft’s territory, too. It’s developing a free operating system, known as Chrome, that could cost Microsoft’s Windows some market share.

How this new pact will reshape tech business is still unclear. But for the immediate future it won't mean much for users of Yahoo or Bing because much of the combined technologies will effect behind-the-scenes operations. But it does indicate that Yahoo is getting out of the search business and Microsoft is fully committed to its new Internet business.

Whether the deal eats away at Google’s core business by stealing significant market share remains to be seen, says TechCrunch blogger Robin Wauters. “But the fact that Bing will be the exclusive algorithmic search and paid search platform for Yahoo sites confirms the notion that Sunnyvale has indeed given up on search in a big way.”
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