After a year and a half of negotiating, Microsoft and Yahoo announced a search deal partnership this morning that will make Redmond's new search engine, Bing, Yahoo's search platform and put Yahoo's sales force in charge of handling both companies' search advertisers.
[ The search deal was confirmed by Microsoft and Yahoo on Wednesday. | Analysis: What the Microsoft-Yahoo-Bing deal means for you and Microsoft-Yahoo is far from a serious threat to Google. ]
As CIO.com noted last week, this puts the weight of the world on search baby Bing. It will now be the branded search engine for both Microsoft and Yahoo, try to build on close to 30 percent market share, and compete with dominant household verb Google. A little over two months ago, Bing didn't even exist.
And despite statements from Yahoo about the partnership being a "significant opportunity for us" and calling Microsoft "an industry innovator in search," Yahoo is handing over a core part of its business to a competitor with less than half the market share.
Sure, Yahoo benefits financially. Yahoo simply doesn't have the money to operate and market its search engine effectively, and Microsoft has the deep pockets to handle that load. Microsoft will pay Yahoo through a revenue-sharing agreement based on traffic generated on Yahoo's network of both Yahoo sites, as well as its affiliate sites. Microsoft will be able to integrate Yahoo's search technology and gain more users and market share.
Yahoo says it expects the deal will boost its annual operating income by about $500 million, while reducing capital expenditure by $200 million and increasing operating cash flow by about $275 million per year.
So this is likely to be a win-win for both on the business side. Microsoft CEO Steve Ballmer said in a statement: "Both companies benefit from scale and better economics. Consumers really will get better products."
He may be right about the first part; but the second part is debatable.
What consumers will get now is a two-horse race and limited choice. Bing's search engine has been getting solid reviews; it does offer a more organized user interface than Google and was able to slightly increase Microsoft's search share in its debut month. But how much will it really improve with the addition of Yahoo's search? What's worse, integrating the two could be a time-consuming and complicated mess, creating a "more is less" scenario.