Yahoo and Microsoft Partnership!!!

The Microsoft and Yahoo deal looks really promising to me because the deal maximizes the strengths of each of the two players. Microsoft is essentially going to be providing technology in the form of the Bing search engine and the Ad Center advertising engine. While Yahoo will provide the traffic. Its an 10 year agreement in which Microsoft will license Yahoo’s core search technologies, and Microsoft’s Bing will become the exclusive algorithmic search and paid search platform for Yahoo sites. Under the agreement, Yahoo! would focus on its core business of providing consumers with great experiences with the world’s favorite online destinations and Web products. The companies expect the closing to occur in early 2010.

What does this deal mean? Well the deal gives Microsoft a huge boost in terma of search shares. This deal leaves Microsoft and Google splitting most of the search share, although Google continues to be the Boss of search with 65%, according to ComScore data. In exchange, Microsoft will pay Yahoo a whopping 88% of the search revenue in so-called Traffic Acquisition Costs.

All in all, it seems a reasonable deal. Micosoft and Google would be fighting a world war of search shares from here on out. Yahoo gets an immediate revenue boost, making their numbers look better. There’s nothing too exciting here, no big acquisition, and not a huge attack against Google, but it is a credible effort. Google, meanwhile, is going to find it harder and harder to continue to steal share. They have regressed to the mean and will now grow at the overall rate of the market, because they are the mean with so much share. The implication is that they need a new growth engine, and until they get one, they will need to focus on profitability through expense controls.

You can find the Full press release here.