Yahoo Could Still Drop Microsoft Soon

Last week, Yahoo and Microsoft announced that they have reworked the terms of their search partnership after extending a deadline for coming to new terms. This followed speculation that Yahoo could pu...
Yahoo Could Still Drop Microsoft Soon
Written by Chris Crum
  • Last week, Yahoo and Microsoft announced that they have reworked the terms of their search partnership after extending a deadline for coming to new terms. This followed speculation that Yahoo could put an end to the companies’ relationship, as CEO Marissa Mayer’s alleged unhappiness with the deal has been widely reported in the past.

    The companies decided to stay together, but under terms that are largely better for Yahoo, which gets increased flexibility to enhance its own search experience on any platform. The partnership is non-exclusive for both desktop and mobile. Yahoo will continue to serve Bing ads and search results for “most” (51%) of its desktop search traffic, it said, and can do whatever it wants on mobile.

    Additionally, they made some changes to ad sales. Microsoft will be the exclusive salesforce for ads delivered by its own Bing Ads platform, and Yahoo will continue to be the exclusive salesforce for its Yahoo Gemini ads platform.

    This week, Yahoo filed a regulatory document with the SEC (via Reuters), and it lays out the exact changes to the agreement, and it includes a termination clause that would allow Yahoo to bail on Microsoft on or after October 1 if it chooses.

    Here are the changes to the agreement as described in the document:

    Services and Exclusivity

    Previously under the Search Agreement, Microsoft was the exclusive algorithmic and paid search services provider to Yahoo on personal computers for Yahoo’s online properties and services (“Yahoo Properties”) and for search services provided by Yahoo to its distribution network of third party entities who integrate Yahoo’s advertising offerings into their Websites and other offerings (“Affiliate sites”). Microsoft was the non-exclusive provider on mobile devices. Pursuant to the Amendment, Microsoft will provide such services on a non-exclusive basis for Yahoo Properties and Affiliate sites on personal computers. Commencing on May 1, 2015, Yahoo agrees to request paid search results from Microsoft for 51% of its search queries originating from personal computers accessing Yahoo Properties and its Affiliate sites (the “Volume Commitment”) and will display only Microsoft’s paid search results on such search result pages.

    Additionally, 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.

    Previously under the Search Agreement, Yahoo had sales exclusivity for Yahoo’s and Microsoft’s premium advertisers. Pursuant to the Amendment, this sales exclusivity will terminate on July 1, 2015. Yahoo and Microsoft will develop a plan to transition premium advertisers for Microsoft’s paid search services to Microsoft commencing on July 1, 2015 and to be completed by January 31, 2016.

    Revenue Share

    Yahoo is entitled to receive a percentage of the revenue (the “Revenue Share Rate”) generated from Microsoft’s services on Yahoo Properties and on Affiliate sites after deduction of the Affiliate sites’ share of revenue and certain Microsoft costs. Under the Search Agreement the Revenue Share Rate was 88% for the first five years and then increased to 90% on February 23, 2015. Pursuant to the Amendment, the Revenue Share Rate will be 93%, but will now apply before deduction of the Affiliate sites’ share of revenue.

    Term and Termination

    The term of the Search Agreement remains 10 years from its commencement date, February 23, 2010, subject to earlier termination as provided in the Search Agreement. Pursuant to the Amendment, on or after October 1, 2015, either Yahoo or Microsoft may terminate the Search Agreement by delivering a written notice of termination to the other party. The Search Agreement will remain in effect for four months from the date of the termination notice to provide for a transition period, however, Yahoo’s Volume Commitment will not apply in the third and fourth months of this transition period.

    So there you have it. If Yahoo, or Microsoft for that matter, doesn’t like how the deal is going under the terms, they’ll be able to call it off sooner rather than later. It will be interesting to see how it plays out.

    Image via Wikimedia Commons

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