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paidContent - Yahoo-MSFT Deal: Details From SEC Filing: Calibrated Against Google's Search Revenues & Marketshare

This story was written by Rafat Ali.


Yahoo (NSDQ: YHOO) just filed with SEC with some more details of its search deal with Microsoft (NSDQ: MSFT). Some standouts:

—The deal details have to be hashed out by by October 27, 2009
—The deal can be terminated if not implemented by July 29, 2010
—Microsoft will hire at least 400 Yahoo employees
—No termination fee, apparently
—Microsoft will pay Yahoo $50 million annually during the first three years, and Yahoo “may use these payments to partially cover transition and implementation costs not otherwise covered under the Search Agreement,” the filing says. So costs associated with transition.
—After five years, Microsoft can choose to take over search advertising sales for premium advertisers. If it does so, Yahoo’s share of revenue will go up to 93 percent. However, if Yahoo chooses to continue selling search ads to premium advertisers over Microsoft’s objection, its share of revenue will fall to 83 percent.
—If Microsoft does not exercise its option to take over premium search advertising sales, Yahoo’s share of search revenue will increase to 90 percent, after five years.
—Yahoo has the option to use Microsoft’s mapping and mobile search services (It has already said it will use Bing’s mobile search)
Very interesting: There are deal termination provisions which are calibrated against Google (NSDQ: GOOG). Yahoo can terminate if the trailing 12-month average of the RPS (revenue per search query) in the U.S. of Yahoo and Microsofts combined queries falls below a specified percentage of Google’s estimated RPS measured on a comparable basis, or if the combined Yahoo and Microsoft query market share in the United States falls below a specified percentage (Ed: would love to know that figure); also on the fifth anniversary of the search agreement, and any time thereafter, Yahoo has the right to terminate the agreement if the trailing 12-month average of Yahoos U.S. RPS is less than a specified percentage of Googles estimated RPS

—Other termination provisions, though seem unlikely to happen: either party may terminate upon “repeated material breaches of material provisions of the Search Agreement such that it is unlikely that the breaching party is willing or able to continue to perform its obligations under the Search Agreement without continuing to materially breach it; or Yahoo may terminate if Microsoft attempts to exit the business of algorithmic search or search monetization, either by ceasing to offer the services or by selling or attempting to sell all or substantially all of either its algorithmic search services business or paid search services business to an unaffiliated third party.”
—If a termination event occurs in the United States, the entire agreement may be terminated. If a termination event does not occur in the United States a partys termination right is limited to the specific country or countries in which the event occurs.
—If Microsoft proposes or attempts to sell all or substantially all of either its algorithmic search services business or paid search services business to an unaffiliated third party, Yahoo will have a right of first refusal and right of last offerto purchase such businesses.
—Microsoft’s search API will be made available to Yahoo “at full parity” to what Microsoft’s teams can access.
—Yahoo will have “full visibility into Microsoft product roadmap and parity with Microsofts internal teams in the product update prioritization process.”
—Microsoft cannot treat Yahoo and its syndication partners less favorably than Microsoft’s own partners.
—Microsoft will provide Yahoo with all the data it collects as part of the relationship. Microsoft cannot use the data to enhance Microsoft products and services other than those covered by the agreement (ie search).
—Yahoo will grant Microsoft an exclusive license to “specified Yahoo algorithmic and paid search technology.” Once the agreement ends, the license will remain in effect but it will no longer be exclusive.
—Microsoft also has an option for a non-exclusive license to Yahoo’s search technology which it could use to “provide online services” on Microsoft owned and operated websites and also third parties. But Microsoft has to pay for that license.
—And Yahoo can choose to have Microsoft offer search services through a “white label solution,” instead of the Microsoft API, in certain countries. From the filing: “Yahoo! may substitute Yahoo! applications or services for Microsoft applications or services within the White Label Solution.”

Additional inputs by Joseph Tartakoff.


By Rafat Ali

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