Microsoft and Yahoo join forces in attempt to unseat Google

Published on Wednesday 29 July 2009 21:42

MICROSOFT and Yahoo are going head to head with Google in the search engine arena after unveiling an eagerly-awaited ten-year partnership.

Bing, Microsoft's new search engine, will be used to power the search function on Yahoo's website, giving the software giant access to the world's second-largest search engine audience.

In return, Yahoo will pocket 88 per cent of revenues from search advertising sales for the first five years and will advertise on some Microsoft sites.

Yahoo said the deal – which the groups hope to seal next year, depending on regulatory approval – will boost its operating profit by $500 million (305m) a year and save it a further $275m a year by removing the need to invest in search technology.

Microsoft chief executive Steve Ballmer said the agreement would give Bing the necessary clout to compete for users and advertising revenue.

"Through this agreement with Yahoo we will create more innovation in search, better value for advertisers, and real consumer choice in a market currently dominated by a single company," he said.

The deal could give Yahoo a chance to recoup some of the money squandered in May last year when it turned down a chance to sell the entire company to Microsoft for $47.5 billion. Yahoo now has a market value of about $24bn.

Like its new partner, Microsoft has invested billions in its search technology during the past decade, yet remained a distant third in market share while its online losses piled up. Microsoft and Yahoo – which have just an 11 per cent share of the global search market – are chasing Google's 67 per cent slice.

Tino Nombro, managing director of Edinburgh-based search agency Ambergreen, said: "If Yahoo and Microsoft are to combine their efforts to take on Google, it would be a good thing for the industry and for advertisers and users. Having one player, Google, with such a huge market share of such a vital communication channel is never an ideal."