Weide noted that, in the short-term, the deal does make financial sense for Yahoo. The company will retain 88 percent of its search revenue, only paying 12 percent to Microsoft for tech services. And, he said, Yahoo will save millions of dollars that no longer need to be spent on datacenters and massive server infrastructures.
"They'll boost profitability, and [Bartz] needs to show to Wall Street that she's making this ship more profitable," said Weide.
Jim McGregor, an analyst at In-Stat in Scottsdale, Ariz., said that if a merger with Microsoft is the final result, the move won't be such a bad one for Yahoo. "This kind of puts the two companies much tighter, where Yahoo becomes the advertising and services arm," added McGregor. "If they're successful and hold their own in this market, five years out we're probably looking at one company and not two."
However, if a merger isn't in the cards, Yahoo could be in a jam.
"Once you give up a key part of your business, it's hard to regenerate that," said McGregor. "What you do is merge with your partner. And a 10-year deal is kind of unheard of in this industry. They didn't do this as a temporary thing. They did this as a permanent thing."
He added that by putting all of its eggs in Microsoft's one basket, Yahoo became extremely dependent on Microsoft's continued interest in the partnership.
Ezra Gottheil, an analyst at Technology Business Research Inc., said Yahoo's big mistake was not accepting Microsoft's offer last year to buy the company for some $45 billion. "The bad deal for Yahoo was turning down the insane first offer," said Gottheil. "Frankly, Yahoo wasn't going to be around at the end of 10 years without it."