Two days ago MSFT and YHOO announced an agreement to pool their web search resources for ten years. In general terms, MSFT will provide the search technology through its Bing search engine, YHOO will sell the service to potential advertisers. At the end of the first five years, the terms of the deal are subject to a reset, but the companies didn’t say by how much or at whose option.
YHOO expects to have extra cash flow of $275 million a year from the deal. MSFT said little other than it expects to spend several hundred million dollars in the initial years. Let’s say this means $2.75 billion (around $2 a share) for YHOO and that MSFT breaks even for the decade-long partnership.
Several aspects of the deal and its announcement are worthy of note: Continue reading