Yahoo-Microsoft search deal has escape clauses

Yahoo’s recently announced search alliance with Microsoft has escape clauses that allow the top internet destination to pull the plug if the partnership stumbles, according to a regulatory filing late Tuesday.

Under the previously disclosed outline of the deal, Microsoft will provide the mechanically driven search results to both its own Bing search engine and to Yahoo’s pages. Microsoft will process the self-service placement of ads that appear next to specified search phases, while Yahoo will handle in-person sales of such search ads for both companies.

Essentially, Microsoft is taking over search technology, allowing Yahoo to save hundreds of millions of dollars while keeping 88 per cent of the revenue from ads placed on its pages for five years. Yahoo will get between 83 per cent and 93 per cent of that revenue in the subsequent five years, depending on options given to each side, according to Yahoo’s filing with the Securities and Exchange Commission.

In addition, Yahoo can walk away, the document says, if Yahoo’s and Microsoft’s combined share of search queries falls below a certain percentage of the market that the two sides have agreed on but not disclosed.

Likewise, Yahoo can bolt if its revenue per search drops below a set percentage of Google’s.

The papers also show for the first time that Microsoft will pay Yahoo $50m in each of the first three years of the 10-year deal in order to defray transition costs. That is on top of Yahoo’s previously projected $275m in annual net income gains from the pact, a Yahoo spokeswoman said.

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