Neither Microsoft nor Yahoo is speaking publicly about reports that they may announce a search partnership as early as Wednesday. But in preparation for that announcement, here are some key numbers on how such a partnership could impact both companies financially, provided by the companies themselves and analysts who cover them.
—Cost savings: Yahoo CEO Carol Bartz has said that her company would save between $500 million and $700 million by outsourcing its search advertising business to Microsoft (NSDQ: MSFT). Since Yahoo is likely to keep selling search ads, however, Christa Quarles at Thomas Weisel estimates annual savings will be less than half that amount.
—Revenue split: Microsoft has 8 percent of the search market and Yahoo has 20 percent, so the total revenue split would seem to be at least 70/30 in Yahoo’s favor, not including some sort of bonus for Yahoo (NSDQ: YHOO). Yahoo will generate at least $1.4 billion via search advertising sales over the next year (if it keeps pace with last quarter’s numbers). Microsoft, meanwhile, doesn’t break down its search advertising sales, but they’re likely to be in the $600 million range.
—Length of deal: Previous reports said the deal would span three years. Bartz was reportedly insisting on a $5 billion upfront payment. If that’s instead the revenue guarantee that Yahoo will get, it would seem that the deal would have to be at least that long, considering that Yahoo would want to generate more money with Microsoft than it would on its own.
—Sales increase: Presumably, both companies expect to generate greater sales by combining their businesses. On their own, neither is doing so well. Microsoft said search ad sales were flat last quarter, while Yahoo said its search revenues fell 15 percent. With greater overall share, the companies would ostensibly be able to attract additional advertisers looking to get bigger reach. Additional advertisers would presumably also lead to a bidding up of prices. But these are all big assumptions, especially considering that the two companies will still only have half of Google’s market share. And, there’s the risk of losing some advertisers, as Microsoft clients make the switch from Microsoft’s sales force to Yahoo’s.
By Joseph Tartakoff