Microsoft, Yahoo ink Internet search deal

Deal designed to challenge Google's dominance

NEW YORK -- After a drawn-out negotiation process with various ups and downs, Yahoo and Microsoft made things official early Wednesday morning by unveiling a 10-year Internet search deal.

The agreement is designed to challenge Google's dominance and the new partners took several shots at the Internet bellwether in announcing it. "Providing a viable alternative to advertisers, this deal will combine Yahoo! and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70% of all search," the firms said in a statement.

Under the terms of the arrangement, Microsoft's Bing search engine will power search on Yahoo's sites, while the Yahoo salesforce will work with both companies' premium search advertisers.

Microsoft will pay for traffic acquisition costs of search revenue generated on Yahoo sites for the first five years.

Yahoo said the deal will boost its annual operating profit by around $500 million.

Microsoft CEO Steve Ballmer said the partnership will provide Bing the scale to compete more effectively. "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.

Yahoo CEO Carol Bartz argued the agreement sets "the foundation for a new era of Internet innovation and development." She also said it will allow Yahoo to increase its investments "in priority areas in winning audience properties, display advertising capabilities and mobile experiences."

The companies said they are "hopeful" the deal can close in early 2010 after a regulatory review. They said they would continue to compete "vigorously" in other areas, such as their Web properties and products, including email, instant messaging and display advertising.