Microsoft to Pay Yahoo $150M, Hire 550—and Watch the Firms’ Combined Market Share

So that’s what all those late-night phone calls were about. In the weeks leading up to the Microsoft-Yahoo search deal announced last Wednesday, executives from both companies would gather (virtually) at 9:30 pm PT every night, including weekends, for a conference call to discuss the latest developments. Dinners, baseball games, and camping trips were interrupted. The Microsoft search team, at least, has apparently been working seven days a week for many months now.

And for what? Besides working on improvements to their Bing search engine, they were hammering out many more parameters of the 10-year search and advertising deal with Yahoo, some further details of which have now emerged in a filing (Form 8-K) with the Securities and Exchange Commission.

For starters, Microsoft has agreed to pay Yahoo $50 million a year for three years, to cover “transition and implementation costs.” Microsoft also guarantees a minimum amount of gross revenue per search for 18 months. (Yahoo keeps 88 percent of search ad revenues and control of ad sales for five years, in exchange for replacing its search technology with Bing.) In terms of personnel, Microsoft will hire 400 Yahoo employees, plus another 150 to assist with the transition, according to the filing.

The deal includes its fair share of escape clauses. Yahoo can opt out if Microsoft and Yahoo’s combined market share of search falls below an undisclosed percentage—currently they combine for about 28 percent of search queries in the U.S., as compared with Google’s 65 percent. Yahoo can also back out if the deal isn’t approved within one year (by July 29, 2010). Lastly, Microsoft can end Yahoo’s exclusive selling of search ads for Bing results after five years. If that happens, Yahoo would get 93 percent of the ad revenue from its sites; but if Yahoo wants to keep exclusive control over ad sales for Bing, it would get 83 percent of the revenues.

Will the deal work? That’s a search query you won’t find an answer for just yet—unless, perhaps, you and all your friends switch to Bing.

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