Yahoo, Microsoft Search Renewal Could Help Portal Renew Its Own Search Tech

Companies' Search Deal No Longer Exclusive

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Marissa Mayer, Yahoo
Marissa Mayer, Yahoo Credit: Simon Dawson/Bloomberg

Yahoo and Microsoft have agreed to renew their search alliance, but in a way that could help Yahoo renew its own search technology.

In 2009 the two companies struck a deal that would have Microsoft's Bing search engine exclusively provide the search results and automate search ad buys on Yahoo's sites and Yahoo handle direct search-ad deals with advertisers. Industry experts viewed the deal as Yahoo -- one of the most dominant early search engines before Google overtook the market -- outsourcing its search technology to Microsoft.

Since former Google search exec Marissa Mayer took over Yahoo as CEO in July 2012, she has reportedly been trying to wiggle out of the agreement in order to reassert Yahoo's search business. For example, the deal's exclusivity clause only applied to desktop, so under Ms. Mayer, Yahoo was able to roll out an ad marketplace called Yahoo Gemini to automate the sale of Yahoo's mobile search ads.

Now Yahoo has blown the loophole wide open. Under the renewal terms announced on Thursday, Yahoo's deal with Microsoft is no longer exclusive on desktop or mobile. That means Yahoo could strike similar deals with other companies that own search engines like Google, Facebook or Amazon to also source their results within its search pages.

But perhaps more importantly, it means Yahoo can rebuild its own search technology. Google and Facebook have been able to build multibillion-dollar ad businesses that are bigger than Yahoo's by being able to dig into all their user data to personalize search results and social feeds as well as the adjoining ads. Yahoo has been able to do that to a point, but operating its own search engine could give it more data and more ownership of that data.

It's hard to say how positive the search alliance has been for Yahoo. Yahoo has credited it for 35% of the $4.62 billion in revenue it made last year, but Microsoft has had a hard time meeting certain agreed-upon revenue markers that has hurt how much money Yahoo makes per search query. And Microsoft's and Yahoo's combined share of the global search ad market this year will be only 6.5% compared to Google's 54.5% share, according to eMarketer estimates.

A rebuilt Yahoo search engine could help the portal strike that search deal with Apple it's reportedly been trying to negotiate that would have it oust Google as Apple's Safari web browser's default search engine, as Yahoo did with Mozilla's Firefox web browser last year.

From a revenue perspective, Yahoo's search business has been a rare bright spot. While the company's display advertising business hasn't had a quarter of year-over-year revenue growth since the third quarter of 2012, Yahoo's search business has grown its quarterly revenue year-over-year for each of the past four quarters. If Yahoo is able to take advantage of the loosened search alliance, that trend could be expected to continue.

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