Finally Microsoft and Yahoo Search Join Forces

Story by CNN Money

After a year and a half of dealing, the tech giants reach a deal to take on Google, which holds a 65% market share in online search.

NEW YORK (CNNMoney.com) -- Microsoft and Yahoo reached a long-awaited partnership Wednesday in a bid to challenge Google's dominance in online search.

Under the 10-year deal, searches on Yahoo.com will be powered by Microsoft's new Bing search engine. Yahoo, in turn, will be responsible for attracting premium advertisers.

Microsoft will pay Yahoo 88% of the revenue it gains from searches on Yahoo's sites. Microsoft will also have the rights to integrate Yahoo search technology into its own existing Web search platforms.

Yahoo said the revenue sharing agreement will increase its operating income by about $500 million annually.

According to Microsoft Chief Executive Steve Ballmer, the deal will allow Microsoft to "create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company."

And in a dig against search market leader Google (GOOG, Fortune 500), the companies said in a joint statement that "advertisers no longer have to rely on one company that dominates more than 70% of all search."

An 18-month odyssey. It was a partnership that was a long time in the making. Microsoft's (MSFT, Fortune 500) search market share has been slipping for more than two years, and the company has struggled to make its online advertising unit profitable. Meanwhile, Yahoo (YHOO, Fortune 500), once the search market leader, dropped to a distant second place behind leader Google (GOOG, Fortune 500) by 2007.

The dealings between the two companies began Feb. 1, 2008, when Microsoft made an unsolicited $44.6 billion cash and stock bid for Yahoo. A week later, Yahoo rejected the bid, saying the $31 per share offer "massively undervalues" the company, despite the fact that the bid represented a 62% premium over Yahoo's $19.18 closing stock price a day before the announcement.

In an attempt to fend off Microsoft, Yahoo launched a two-week trial partnership with rival Google on April 10, 2008. That involved outsourcing advertising space to Google as part of a short-term agreement that could eventually lead to a bigger partnership.

Microsoft threatened to take its bid to Yahoo's shareholders by the end of April if a deal could not be reached, and even sweetened the pot to $33 per share. In a turnaround move, Microsoft opted to avoid a hostile takeover and simply dropped the bid for Yahoo altogether on May 5 of last year. Microsoft CEO Ballmer cited the economics of the deal as well as Yahoo's interest in a long-term Google partnership as reasons.

Almost as soon as the deal seemingly died, signs of life re-emerged. First, activist investor Carl Icahn threatened Yahoo's board with a proxy battle if the company's executives didn't return to the bargaining table with Microsoft. Then, shares of Yahoo rocketed higher on May 19, 2008, when rumors circulated that Microsoft was interested in Yahoo's search advertisement business.

On June 12 of last year, however, Yahoo announced that discussions with Microsoft had ended without a pact. The same day, Yahoo turned around and announced a deal with Google to put Google ads on Yahoo's search pages. That tie-up was later nixed after a Justice Department antitrust investigation prompted Google to end the partnership. Icahn and Yahoo reached a truce in late July of last year.

The situation at Yahoo took a turn for the worse after the credit crisis erupted in October. Yahoo announced it would lay off 10% of its workforce in late October, shares slipped below $9 in November and Chief Executive Jerry Yang announced his resignation.

When Carol Bartz came on as Yahoo's new CEO in January 2009, she said she would not sell the company outright, but appeared to be more open to a sale of the company's search business.

Rumors of a possible deal were reignited when Bartz acknowledged at the All Things Digital conference on May 27 that Yahoo and Microsoft had been talking "a little bit," and said outright that Yahoo's search business was for sale, albeit for "boatloads" of money.

The next day, Ballmer unveiled Microsoft's new Bing search engine. Reports began to circulate in mid-June that Bing was a success, growing Microsoft's beaten-down search market share and eating into Yahoo's, and Ballmer reiterated to Fortune's Patricia Sellers that Microsoft "remains open to a partnership with Yahoo."

Google's results show slowing growth as online advertisers cut back

MercuryNews.com

As the toll of the financial collapse mounts, add one more victim: Google's go-go growth.

On Thursday, the search giant announced second-quarter revenue was essentially flat compared with the first quarter.

Profit rose, but that's because the Mountain View company slashed spending on computer technology and the giant data centers that power its business. And the company continued shedding jobs, after years of adding hundreds or even thousands of new Googlers every quarter.

Google's report adds to a mixed picture about the health of the technology industry. Earlier this week, Dell forecast that weak demand from big corporate customers would keep pressuring its profit, while Intel delivered a bullish report that led to a market rally Wednesday. And late Thursday, IBM delivered an especially upbeat assessment about the rest of the year.

CEO Eric Schmidt said Google's advertising business had stabilized. "We are not at the moment looking at the downward spiral we thought we might see six months ago," Schmidt told analysts in a conference call, noting that "a quarter ago, we had no idea where the bottom was."

But Schmidt could not identify signs of a recovery. The best news was that enough of Google's big advertisers have come back that the company was able to ring up $5.52 billion in revenue during the second quarter. That was $10 million better than the first quarter, when the company's revenue declined for the first time ever from the quarter before that and it looked like the economy was falling off a cliff. Advertisers, however, are spending less than they used to.

"For the first time, we saw a really big drop in revenue per search," said Jeffrey Lindsay of Bernstein Research. "We thought it wouldn't have deteriorated much for the first quarter, but obviously it has gotten worse." Revenue per search is a measure analysts watch. It goes down when advertisers pay less for ads or buy fewer ads.

The silver lining? The amount advertisers are willing to pay is "no longer declining now as a general rule across the board," said Jonathan Rosenberg, senior vice president for product management.

Google did manage to increase profit 18 percent as net income rose to $1.48 billion, or $4.66 a share, compared with $1.25 billion, or $3.92 a share, a year ago.

But that increase only came because of the cuts in hiring and technology spending, as well as an unusually low tax rate.

The number of employees at Google dropped by 378 to 19,786, marking a definitive end to a madcap hiring spree that characterized the company in the early years following its IPO.

Spending on capital projects plunged to $139 million. Two years ago, it was $575 million.

In an interview with the Mercury News, Chief Financial Officer Patrick Pichette praised employees for being frugal but said it would be wrong to assume that austerity had come to the Googleplex.

"We still have free food," he said. "We still have massages. There is still a doctor on site."

"It's mixed results," said Ron Gruia, an analyst with Frost & Sullivan who praised Google for its discipline. "It's the lowest growth rate since the company went public five years ago."

And if Google, one of the most profitable companies on the planet, is struggling, other smaller Internet companies are fighting for survival.

Schmidt and other executives described how Google has been pulling out the stops to turn YouTube into a profitable business and to begin selling meaningful amounts of display advertising — graphical ads that may soon increasingly replace the smaller, unobtrusive text ads that fueled Google's early growth.

"I think that is the next area where online advertising is going to shift and we are going to see tremendous growth," said Nikesh Arora, president of global sales. Arora said he was also pleased with the "trajectory of YouTube," which is selling more ads. "In the not long too distant future we see a profitable business," he said.

Google stock rose 1 percent to close at $442.60 in regular trading Thursday. But it fell as low as $427.67 in after-hours trading.

Bing Continues to Show Growth in Search Activity
Story from ComScore

Microsoft Sees Gains in U.S. Searcher Penetration and Share of Search Result Pages During the Second Week of Bing’s Debut

RESTON, VA, June 17, 2009 – comScore, Inc. (NASDAQ: SCOR), a leader in measuring the digital world, today released a follow up study on the performance of Bing, Microsoft’s new search engine, during the second week of its public launch. The results show that Microsoft has continued to increase its position in the search market following the initial week of Bing’s debut.

Microsoft Sites saw its average daily searcher penetration and share of search result pages in the U.S. continue to climb during the second week of Bing’s introduction. Microsoft Sites’ average daily penetration among U.S. searchers reached 16.7 percent during the work week of June 8-12, up 3 percentage points from the May 25-29 work week prior to Bing’s introduction. Microsoft’s share of search result pages in the U.S., a proxy for overall search intensity, increased to 12.1 percent during the period of June 8-12, also climbing 3 percentage points from the pre-introduction work week of May 25-29.

Microsoft Sites Search Performance
Work Week: 5/25/09 – 6/12/09
Total U.S. – Home/Work/University Locations
Source: comScore qSearch

Work Week *************5/25/09-*************6/1/09-*************6/8/09-
****************************5/29/09**************6/5/09***********6/12/09

Searcher Penetration**13.7% ***************15.8% ************16.7%
(Avg. Daily)

Share of Search**********9.1%****************11.3% ************12.1%
Result Pages

“It appears that Microsoft Bing has continued to generate interest from the market for the second consecutive week,” said Mike Hurt, comScore senior vice president. “These early data reflect a continued positive market reaction to Bing in the initial stages of its launch.”

China Accuses Google Of Lewd Behavior
Beijing Continues Its Fight Against The Public Square In Cyberspace
Story from Mercury News

Damming the Web: Days before a deadline abruptly imposed by China, computer makers are scrambling to comply with an order to supply Web-filtering software with PCs amid concerns about what it might do to their reputations.

Hewlett-Packard, Dell and Taiwan's Acer — the top three global producers — are asking regulators for details of the order that takes effect July 1 to provide Green Dam Youth Escort software with every laptop and desktop PC sold in China.

The conflict comes as Beijing launched new criticisms this week against search giant Google, which a foreign ministry spokesman accused Thursday of spreading pornography. Chinese users were unable to connect to Google's main site or its China-based service, google.cn, from late Wednesday into today. But spokesman Qin Gang, speaking at a regular briefing, sidestepped questions about whether the government was blocking access.

Government regulators say Green Dam must be supplied with every computer to prevent children from surfing the Internet for pornography. But technical analyses of the software — developed by a previously unknown Chinese company — have shown embedded programs to filter out content the government deems politically objectionable.

Yahoo To Build Data Center Near Buffalo
Story from the Mercury News

BUFFALO, N.Y. — Internet giant Yahoo plans to open a data center in western New York.

Gov. David Paterson says that the center in Lockport north of Buffalo is expected to begin operating in January 2011 and will create about 125 jobs.

The governor says construction of the center, housing computer systems and other equipment, is expected to begin this fall.

Based in Sunnyvale, Yahoo has been expanding its number of data centers around the country. The centers use a large amount of energy, and Paterson says Tuesday that the New York Power Authority came up with a low-cost power plan to lure Yahoo to Lockport.