Last updated: February 18, 2010 9:08 pm

Microsoft-Yahoo alliance is approved

US and European antitrust regulators approved an internet search alliance between Microsoft and Yahoo in a decision that backed the view of many big advertisers that the combination would give kingpin Google more competition.

The companies said they would begin integrating the relevant operations in the “coming days”, acting on plans they have been working on since they proposed the deal in July last year.

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Microsoft would assume responsibility by the end of 2010 for the computer-generated search results and advertising links on Yahoo’s pages.

A smaller combined market share in Europe had given the companies confidence of winning European Union approval, but the blessing of the Obama administration had been less certain. Regulators in the US Department of Justice have pledged a tougher antitrust line than the preceding regime.

Some of the largest advertising buyers, including WPP, Omnicom and Publicis, argued in favour of the pact, while Google stood on the sidelines.

EU competition officials said that their one-month investigation had indicated that scale was critical to search-ad competition and that Google had
90 per cent of the European market. Justice officials had no immediate comment.

Carol Bartz, Yahoo chief, agreed to the deal after a long courtship that at one point envisioned Microsoft’s outright purchase of the struggling portal. Yahoo stockholders were disappointed with some of the terms of the final alliance, including the small cash guarantees. But within Yahoo, yesterday’s clearance of the last big hurdle to consummation brought a sense of relief, since the company’s search share has continued to dwindle and it had no serious back-up plan.

Yahoo said that a 10-year licence to its own search technology and 400 employees will be turned over to Microsoft, as projected previously.

Besides providing the algorithms for search results, Microsoft will handle the small businesses that buy ads based on search words without assistance from sales staffers. Yahoo’s sales force will take control of the relationship with the biggest buyers.

Advertisers might not be moved to the new system before the end-of-year holiday season, Yahoo conceded, and the massive integration effort might last into 2012.

Although Yahoo argues the point, analysts said that the ­outsourcing of search marks the end of the company’s position as a true contender in internet ­technology.

Instead, Yahoo is now a pure new media group, with its fortunes pegged to the number of users it draws and the effectiveness of different means for showing them advertisements.

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