Opening up a call to discuss the 10-year search partnership her company finally announced with Microsoft (NSDQ: MSFT) this morning, CEO Carol Bartz described it as a “game changer,” saying it would allow the company “to keep a healthy revenue stream” while investing in areas “critical to our future,” such as display advertising, mobile experiences, and audience properties. Microsoft CEO Steve Ballmer followed up by saying the deal would obviously benefit Bing’s momentum—and let the company “create more innovation” in search. In their remarks, both executives played up the importance of scale in the search market, saying for instance that advertisers did not want to learn three advertising platforms.
—Overall benefits: Ballmer said the two companies would be able to close the gap with Google (NSDQ: GOOG) on average revenue per search. Together, he added, the companies will also be able to improve the relevance of search results. “The more searches you serve, the more you learn about what people click on, what’s relevant,” he said. “Scale drives knowledge. That can turn around and drive relevance.”
—Branding: At the bottom of the Yahoo (NSDQ: YHOO) search results page, it will say “powered by Bing.” Yahoo’s search engine, however, will remain prominently branded as Yahoo, according to Bartz and the company has “full flexibility” to decide how to play up Bing across its network of sites. Executives gave the impression that not all the details had been worked out yet.
—Questions about the deal structure: There was no upfront fee—and no display component, as had been widely rumored. Bartz said “having a big cash payment upfront” would not have helped the company from an operating standpoint. “The boatload of cash is us preserving our revenue line,” she said. Meanwhile, she said “we wanted to keep this as straightforward and simple as possible” and therefore did not include a display ad relationship.
—Mobile: The mobile component of the deal is not exclusive like the desktop side is, Bartz said, although the company will nevertheless “start exercising” it.
—Transition: Starting in the U.S., three to six months after the close of the deal the switch to Bing will begin, with transitions in other countries following that, Bartz said. The transition will be led by a team from both sides. She played up that Yahoo already had experience transitioning from Overture to its Panama ad platform. And Ballmer emphasized that “it’s not like we come here with a two-page term sheet,” saying the company had “worked through the operating principles of cooperation.”
—New costs for Microsoft: Microsoft will incur “several hundred million” in transition costs in the short-run. Ballmer said there would also be “additional capex” for Microsoft, likely due to new data centers.
—Jobs: An unspecified number of Yahoo search employees will be asked to take jobs at Microsoft, Bartz said. Sme search employees will be transitioned to the display business. However, “there will be some redundancy” although she said nothing would change until the deal was approved by regulators.
—Antitrust concerns: Microsoft General Counsel Brad Smith said there was a “compelling case” that the deal would generate additional competition in the search marketplace—noting that Google had 78 percent of the paid search market. He said that Yahoo and Microsoft would start making their case to regulators beginning next week.
By Joseph Tartakoff