Yahoo and Microsoft are poised to finally sign the definitive agreement that will govern the complex and far-reaching search and online advertising partnership they struck in late July, said sources close to the situation.

If all goes well, the various Microsoft and Yahoo execs–who have been ferreted away over the last weeks, busy dotting all the i’s and crossing all the t’s in the massive document–could even turn in their deal homework to their bosses for signature by the end of the week.

Yahoo (YHOO) officials declined to comment, while Microsoft (MSFT) has not gotten back to BoomTown as yet.

In any case, getting the definitive agreement in place is critical to making the high-profile MicroHoo deal a reality and, of course, getting the anti-Google (GOOG) party started.

So when the pair blew through a deadline to complete it in late October, there were eyebrows raised all over Wall Street and Silicon Valley.

When Yahoo filed an 8-K with the Securities and Exchange Commission in August, it noted that the “Definitive Agreement” between the Silicon Valley Internet company and the Redmond, Wash., software giant needs to be sketched out by Oct. 27, 2009.

But it is a monster document, which is why MicroHoo did not complete it in time. After that whiff, Yahoo said as much in another filing with the SEC:

“The Letter Agreement specified that the parties would execute definitive agreements by October 27, 2009, but given the complex nature of the transaction, there remain some details to be finalized.”

Added Microsoft similarly:

“We have made good progress in finalizing the definitive agreements. Given the complex nature of this transaction there remain some issues that need some additional clarity and definitive details.”

Nonetheless, both companies have consistently said that they would be able to close this deal by early 2010.

Yahoo and Microsoft had already done a pretty hefty binding-agreement letter (here is a picture of Yahoo’s CEO Carol Bartz and Microsoft CEO Steve Ballmer holding it, in fact).

Also key: Getting approval for the deal from regulators in Washington, D.C., which, sources said, also seems to be on track.

With little opposition, Yahoo and Microsoft policy types have been chipping away on regulatory issues with federal regulators in Washington.

And, several sources said, those government approvals are now nearing completion at the Justice Department, even though the Federal Trade Commission might still ask for more assurances on privacy issues related to online advertising and consumer data.

International regulatory approval is another story, especially in Europe, which could further delay the implementation of the partnership, since it is unlikely the pair would move forward without clearance globally.

When that is done, the real game begins, as MicroHoo faces its the much more critical Tim Gunn acid test for the deal:

Making it work.

In what should come as a shock to almost no one, the detailed negotiations to complete the Microsoft and Yahoo search and online advertising final agreement are more complicated than its authors anticipated and are taking longer than expected to complete.

Relax, folks–they’ll get done.

But here’s a more important thing that should wrap up sooner than later: Yahoo CEO Carol Bartz’s seemingly never-ending gibes about former CEO and co-founder Jerry Yang’s tenure.

First, let’s deal with the issues around the agreement, which is a monster document.

That’s why MicroHoo missed the deadline yesterday to execute its definitive agreement on the transaction struck in July.

In a filing with the U.S. Securities and Exchange Commission, Yahoo (YHOO) said:

“The Letter Agreement specified that the parties would execute definitive agreements by October 27, 2009, but given the complex nature of the transaction, there remain some details to be finalized.”

Added Microsoft (MSFT) in a long statement:

“Microsoft and Yahoo! are committed to this agreement and believe this is a highly competitive deal that is good for consumers, advertisers and publishers. We have made good progress in finalizing the definitive agreements. Given the complex nature of this transaction there remain some issues that need some additional clarity and definitive details. So, the teams at Yahoo! and Microsoft are continuing to work on the remaining details, and we have mutually agreed to extend the period to negotiate and execute the agreement. We plan to do this as expeditiously as possible. Both companies are optimistic that we will be able to close this deal by early 2010.”

Thus, the deadline has been pushed back indefinitely, which is very common in such larger and complicated deals.

Yahoo and Microsoft had already done a pretty hefty binding letter agreement (here is a picture of Yahoo’s Bartz and Microsoft CEO Steve Ballmer holding it, in fact).

Getting approval from regulators is also part of the deal, and it is likely to happen in the U.S. just after the new year.

International regulatory approval is another story, especially in Europe, which could further delay the implementation of the partnership, since it is unlikely the pair would move forward without clearance globally.

But perhaps most of all, what seems more likely to never end and probably should is the proclivity of Yahoo’s Bartz to use sharp-tongued analogies to talk about just how bad Yahoo had been doing and how it is now poised to make a comeback.

In her very first press conference when she got the job, in fact, she noted that Yahoo, “frankly, could use a little management.”

Bartz was right then and even more correct to say it out loud, but she has not stopped the criticism.

And, like clockwork, at an analyst day at Yahoo HQ in Sunnyvale, Calif., today, Bartz trotted out a yet another in a long series of backhanded insults to former CEO Jerry Yang and his crew.

Said Bartz at the event about the Silicon Valley icon:

“We have fallen and we really want to get back up. If you haven’t had good times and bad times, you don’t know what you’re doing. We prefer the good times. We have passion to get back there. Today is the start of that.”

Today is the start? Didn’t Yahoo declare a version of the same theme when the MicroHoo deal was announced in July? And at the the launch of the new homepage in September? And the more recent rollout of its massive marketing campaign?

It seems to me that since she has been there almost a year, much like the Obama administration, Bartz should not be looking backward anymore and keep announcing that it is time to get back on track.

Because she is most definitely in charge now at Yahoo and should be the one to get all praise and all blame from here on out.

So, as someone who has definitely been very tough on Yang while CEO, it’s time to stop knocking him over now, because it is starting to feel like a very cheap shot.

Yesterday, BoomTown wrote about the status of the regulatory approval for the Microsoft-Yahoo search and online advertising pact.

While none of the key constituencies wanted to comment or make predictions about the outcome of the government scrutiny, most seem to agree that the MicroHoo partnership is more likely to be approved than not.

One of the few vocal critics of the deal, though, is Jeffrey Chester, the executive director of the Center for Digital Democracy, a public interest group.

CDD, along with several other consumer groups, recently sent a letter to the Justice Department’s antitrust head, Christine Varney, expressing concern about the control and collection of consumer data in the deal.

CDD also has been querying Microsoft (MSFT) and Yahoo (YHOO) directly about the data collection and privacy implications of the deal, which is something the government should be doing.

So, to further get a glimpse into MicroHoo’s arguments, here is a set of important questions Chester asked then that were answered in a memo by the pair:

What specific data collection, interactive ad technologies and targeting applications will be used for search under the 10 year deal?

Today, Yahoo! collects data about Yahoo! visitors to our search product and uses that information to deliver products and to customize advertising and content, among other purposes described in its Privacy Policy. Microsoft and Yahoo! have each adopted industry-leading privacy practices with respect to search. For instance, under Yahoo!’s global data retention policy, Yahoo! anonymizes user log data within 90 days with limited exceptions for fraud, security and legal obligations. For search specifically, Yahoo! will convey certain data to Microsoft to fulfill a user’s search request. This includes the query and the IP address. Microsoft will anonymize this data sent to it by Yahoo! in accordance with Yahoo!’s announced data retention policies. Microsoft is only permitted to use search data that it obtains under the deal to operate and improve its search services and for no other purpose.

Will Yahoo’s behavioral targeting technologies for search still be used?

Yahoo! does not currently employ behavioral targeting in search. [Ed. note: Not completely true; see press release from Yahoo here on new targeting capabilities.]

Will any of Yahoo’s targeting apparatus be incorporated in any way with Microsoft Advertising, including with Bing?

No. This deal is limited to search, and as noted above, Yahoo! does not employ behavioral targeting in search.

Will search ads be sold by either Yahoo or Microsoft that provide for multimedia results, such as video?

Video advertising is still a small and growing area and as such, it’s impossible to predict what video ads in any form, including what a potential video search ad, could look like several years from now.

How may this deal affect the Yahoo! Newspaper Consortium?

The partnership Yahoo! has with the newspapers is broad and includes everything from content distribution, advertising cross sales, and technology platform development, to the display of Y! sponsored search listings on the newspapers’ own Web sites. Yahoo! Does not see the Microsoft deal as having an immediate impact on its newspaper consortium dealings. However, by combining its platform with Microsoft’s, Yahoo! and Microsoft will be in a position to offer the Newspaper Consortium and other web publishers more competitive bids for search syndication deals than either company can offer separately.

What ad research and development will be shared or done in common?

It is premature to speculate about the exact research that will be done, but the increased scale that will result from this search deal is expected to significantly enhance the ability to conduct meaningful research in a timely manner.

What rationale was used to embrace the 3 month data retention time? Why isn’t a shorter retention time adopted?

Yahoo! did an extensive analysis and review of all our data systems globally in 2008. Yahoo! arrived at 90 days retention as the right timeframe for most of its log file data that allows it to deliver the industry-leading products and services its users expect from them, but that also minimizes the duration of time Yahoo! holds data in identifiable form. It’s important to note that some of Yahoo!’s log file systems retain identifiable data for less than 90 days but none will hold data longer except for a limited number of specific systems dedicated to fraud and abuse and to meet legal obligations.

How do you envision Yahoo remaining viable when it no longer has a meaningful independent search service, given the need to have a coordinated search/display environment for digital marketing?

Future growth in online marketing will come from shifting spend from offline advertising to the online world. Offline advertising spend is disproportionately held by the largest advertisers and they control the vast majority of ad spend. Yahoo! has the leading position in branded advertising and Yahoo! also serves the needs for the growing market of performance advertising. So this deal with Microsoft enables Yahoo! to deliver a fully integrated solution that meets marketers’ needs at scale. Through this deal, Yahoo! retains a revenue stream in search without incurring the costs of developing a search platform or engine. Yahoo! will get paid an 88% TAC rate while eliminating significant expenses, enabling Yahoo! to invest more heavily in other areas of focus: amazing audience properties, web products, enhanced display advertising capabilities, and fantastic mobile experiences.

Unlike the gripping back and forth of the fight over Yahoogle last year, the approval process for the search and online advertising partnership of Microsoft and Yahoo is chugging along slowly but surely as the Justice Department has deepened its investigation by reaching out to a broad range of publishers, advertisers, public interest groups and rivals for comment recently.

A month ago, the government agency lobbed in a “second request” for information about the deal the pair struck earlier this summer.

This kind of regulatory review is typical in deals of this magnitude.

But so far, there is no significant external challenge to the MicroHoo deal, even–according to many sources BoomTown has interviewed over the last week–from Google, the likeliest company to try to scuttle or, at the very least, slow down the deal.

“Is it worth fighting a big fight over?” asked one person close to the thinking of Google (GOOG). “Not really.”

Said another source, surveying the state of play: “It’s eh, kind of inevitable and not that interesting on a lot of levels.”

While none of the key constituencies wanted to comment or make predictions about the outcome of the regulatory scrutiny, most seem to agree that MicroHoo is more likely to be approved than not.

At the time the partnership was announced in July, execs at both Microsoft (MSFT) and Yahoo (YHOO) said a lot of investigation was likely from Justice, although they said they were also confident that it would be allowed go through by year’s end.

So far, several sources said, the key issue raised by the Justice Department has been whether the argument Microsoft and Yahoo are making–that they need scale to compete with Google–is valid or not.

Currently, Google has just under 70 percent of the search market in the U.S., while Microsoft and Yahoo together have about 28 percent.

Google has been arguing that huge scale is not necessary to be successful in the search ad market, although its execs have often said bigger is better when it comes to natural search and in spurring more clicks on ads.

Meanwhile, Microsoft and Yahoo have said they need all the firepower they can muster together to battle Google’s hegemony.

In a related concern, some regulators are worried–as they were when Google and Yahoo were trying to get approval for a similar deal last year–that any hookup of big players in the market will effectively take Yahoo out of the search business.

“With only three big players, going to two is not desirable to the government,” said one source. “Yahoo has to reassure everyone that it is focused on a sustainable business model beyond search.”

In a blog post yesterday, in fact, Yahoo said it was committed to search innovation.

In any case, most expect another month of investigation at least, although the lack of any loud voice in opposition could shorten that time frame.

And, added some sources, unlike with Yahoogle, there is not likely to be any kind of Congressional hearing on the deal.

Nonetheless, Microsoft, Yahoo and Google remain concerned that deals like this will lead to more focus on privacy issues, specifically around behavioral targeting.

That would be more a matter for legislators or the Federal Trade Commission and would probably come well after the deal is cleared and as part of a bigger topic.

Rep. Rick Boucher (D., Va.), who chairs the Subcommittee on Communications, Technology and the Internet, said he will consider consumer privacy legislation this fall.

Boucher led hearings on the subject this summer, and there might be more, especially as Web companies garner a lot of personal information from consumers with little oversight of what they do with those data.

If Boucher does call for hearings, he might want to replay this particularly boneheaded (but funny!) video from Yahoo’s U.K. ad staff, which classifies various Yahoo customer types–such as “disco-dancing heart surgeons from Nantwich”–as farm animals:

Please see this disclosure related to me and Google.

As BoomTown promised earlier today, here’s the first of many filings related to the Yahoo-Microsoft online search and advertising deal announced last week.

The 8-K filing was made with the Securities and Exchange Commission by Yahoo.

Some highlights, although most of them are not that new:

* No termination fee.

* There is a $50 million annual payment to Yahoo (YHOO) by Microsoft (MSFT) for three years, for unspecified “transition and implementation costs” beyond the agreement.

(Personally, I think it’s for extra Advil needed for the headaches engendered organizing this circus.)

* At least 400 Yahoo employees will be hired by Microsoft, which will also provide funds for retention packages to keep 150 more Yahoos motivated during the transition.

* The “Definitive Agreement” between the Silicon Valley company and the Redmond, Wash., software giant needs to be sketched out by October 27, 2009.

But why don’t you read all the niggling details yourself, including about Google (GOOG), below (I stripped away only minor SEC legalese and fill-in-the-blank details):

Item 1.01. Entry into a Material Definitive Agreement.

Binding Letter Agreement–General Terms

On July 29, 2009, Yahoo! Inc., a Delaware corporation (“Yahoo!”), and Microsoft Corporation, a Washington corporation (“Microsoft”), entered into a binding letter agreement (the “Letter Agreement”), pursuant to which the parties will negotiate and execute a Search and Advertising Services and Sales Agreement and a License Agreement (the “Definitive Agreements”), each reflecting and supplementing the provisions of such Definitive Agreements as set forth in annexes to the Letter Agreement, the material provisions of which are summarized below.

Negotiation and Execution of the Definitive Agreements

Pursuant to the terms of the Letter Agreement, the parties will negotiate and execute the Definitive Agreements as soon as practicable but in any event by October 27, 2009 (the “Negotiation Period”). If the Definitive Agreements are not executed during the Negotiation Period, the parties will submit any disputes regarding the final terms of the Definitive Agreements to an arbitration panel. The arbitration panel will render its decision based upon the terms of the Letter Agreement, the nature of the commercial relationship to be created thereunder, and the submissions and presentations of the parties at a hearing conducted by the arbitration panel. The arbitration panel will render a decision by choosing the final proposed contractual language of either Microsoft or Yahoo! without modification, subject to a final review process to resolve any potential inconsistencies. The decision of the arbitration panel will be binding on the parties, and the parties agree to execute Definitive Agreements as determined by the arbitration panel within three (3) days of the receipt of the arbitration panel’s final decision.

Regulatory Review

Microsoft and Yahoo! agree to use their respective best efforts to cooperate in connection with all necessary regulatory filings. In addition, as soon as practicable after July 29, 2009, Microsoft and Yahoo! will make all filings required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended (the “HSR Act”) and by any applicable foreign antitrust laws. Microsoft further agrees to use its best efforts to obtain any consents, clearances or approvals required under or in connection with the HSR Act or any other applicable antitrust law, including offering, negotiating or committing to any restrictions on the activities of Microsoft and its subsidiaries in search and paid search and contesting and defending any threatened or pending litigation, investigation or proceeding under applicable antitrust laws.

Conditions to Commencement and Termination Prior to Commencement

The obligations of each party to commence performance of their obligations under the Definitive Agreements (the “Commencement Date”) are only subject to (a) termination or expiration of the HSR Act waiting period and receipt of certain required foreign antitrust approvals and (b) the accuracy of the party’s representations and warranties in the Letter Agreement as of the time immediately prior to the Commencement Date and performance by the other party of its obligations required to be performed by it in connection with the Letter Agreement and the Definitive Agreements at or prior to the Commencement Date, except where the failure of such representations and warranties to be true and accurate or the failure of such performance would not, individually or in the aggregate, have a material adverse effect with respect to such party.

Prior to the Commencement Date, the Letter Agreement and Definitive Agreements may be terminated only by (a) mutual consent, (b) if a breach renders a condition incapable of being satisfied by the Termination Date (as defined below), or (c) if the conditions to commencement have not been satisfied by July 29, 2010 (the “Termination Date”); provided that Yahoo!, in its sole discretion, has the right to extend the Termination Date by six (6) months if the required antitrust approvals have not yet been obtained.

Search and Advertising Services and Sales Agreement

Pursuant to the Letter Agreement, the parties have agreed to enter into a global Search and Advertising Services and Sales Agreement (“Search Agreement”), which will include, among other provisions, the terms summarized below.

General Services

For a period of ten (10) years beginning on the Commencement Date (the “Term”), Microsoft will be Yahoo!’s exclusive technology provider for algorithmic and paid search services and Microsoft will provide contextual advertising to Yahoo! on a non-exclusive basis. Yahoo! will be the exclusive worldwide relationship sales force for Yahoo!’s and Microsoft’s premium search advertisers.

The services provided by Microsoft under the Search Agreement will be provided on all web sites, applications and other online digital properties owned or operated by or on behalf of (a) Yahoo!, Yahoo! subsidiaries and Yahoo! joint venture relationships, as well as on software applications developed or distributed by Yahoo! or Yahoo! subsidiaries that provide access to or enable algorithmic search services or paid search services (“Yahoo! Properties”) and (b) Yahoo! Syndication Partners (as defined below), as well as software applications developed or distributed by Yahoo!’s Syndication Partners that provide access to or enable algorithmic search services or paid search services from Yahoo! (“Syndication Properties”). “Syndication Partner” means a third party with whom Yahoo! has contracted to provide algorithmic search services or paid search services.

Subject to certain specified restrictions, Yahoo! will have full flexibility with respect to the user experience, content and look and feel on all of its web pages, and will also be entitled to use the paid search services and algorithmic search services for non-internet search queries with minimal restriction.

The scope of the services to be provided by Microsoft under the Search Agreement are limited to web sites, applications and other online digital properties designed for use and consumption on personal computers. In addition, Yahoo! may at its option elect to receive Microsoft’s mapping services and mobile search services. Yahoo! may implement each of the mapping services and the mobile search services on a non-exclusive or an exclusive basis. Yahoo! also has the option to work with Microsoft to implement the services on other platforms. If Yahoo! elects to receive services for other platforms, it must receive such services on an exclusive basis.

Revenue Share Payments and Other Payments

During the first five years of the Term, Yahoo! will be entitled to receive 88% of the net revenues generated from Microsoft’s services on Yahoo! Properties (the “Revenue Share Rate”). Yahoo! will also be entitled to receive its share (at the Revenue Share Rate) of the net revenues generated on Syndication Properties after the Syndication Partner’s share of net revenues is deducted. For new Syndication Properties during the Term, and for all Syndication Properties after the first five years of the Term, Yahoo! will receive its share (at the Revenue Share Rate) of the net revenues generated from Microsoft’s services on Syndication Properties after the Syndication Partner’s share of net revenues and certain Microsoft costs are deducted.

On the fifth anniversary of the Commencement Date, Microsoft will have the option to terminate Yahoo!’s sales exclusivity for premium search advertisers. If Microsoft exercises its option, the Revenue Share Rate will increase to 93% for the remainder of the Term, unless Yahoo! exercises its option to retain its sales exclusivity, in which case the Revenue Share Rate would be reduced to 83% for the remainder of the Term. If Microsoft does not exercise such option, the Revenue Share Rate will be 90% for the remainder of the Term.

Microsoft will also pay Yahoo! a payment of $50 million annually during the first three (3) years of the Search Agreement. Yahoo! may use these payments to partially cover transition and implementation costs not otherwise covered under the Search Agreement.

Microsoft will provide in each country an 18-month guarantee for the gross revenue per search (the “RPS”) for Yahoo! Properties. The guarantee will be based on the RPS average for the trailing 12-month period prior to the initial implementation of paid search services in such country.

Termination Provisions

In addition to the termination rights described in the Letter Agreement above, the Search Agreement may only be terminated as follows (each, a “Termination Event”): (a) either party may terminate upon repeated material breaches of material provisions of the Search Agreement such that it is unlikely that the breaching party is willing or able to continue to perform its obligations under the Search Agreement without continuing to materially breach it; (b) Yahoo! may terminate if Microsoft attempts to exit the business of algorithmic search or search monetization, either by ceasing to offer the services or by selling or attempting to sell all or substantially all of either its algorithmic search services business or paid search services business to an unaffiliated third party; (c) Yahoo! may terminate the Search Agreement if the trailing 12-month average of the RPS in the United States (the “U.S. RPS”) of Yahoo! and Microsoft’s combined queries falls below a specified percentage of Google Inc.’s (“Google”) estimated RPS measured on a comparable basis or if the combined Yahoo! and Microsoft query market share in the United States falls below a specified percentage; (d) on the fifth anniversary of the Search Agreement, and any time thereafter, Yahoo! has the right to terminate the Search Agreement if the trailing 12-month average of Yahoo!’s U.S. RPS is less than a specified percentage of Google’s estimated RPS; or (e) subject to exceptions, either party may terminate if a law, regulation or order would have a significant, adverse impact on a primary aspect of such party’s intended benefit of the Search Agreement.

If a Termination Event occurs in the United States, the entire Search Agreement may be terminated. If a Termination Event does not occur in the United States a party’s termination right is limited to the specific country or countries in which the event occurs.

If Microsoft proposes or attempts to sell all or substantially all of either its algorithmic search services business or paid search services business to an unaffiliated third party, Yahoo! will have a right of first refusal and right of last offer to purchase such businesses.

Service Level Agreements

The Search Agreement will provide (a) for service parity under which applicable application programming interfaces (“Microsoft API”) will be made available to Yahoo! at full parity with that which is made available to Microsoft’s internal teams; (b) for ranking and content parity under which Microsoft will provide the same algorithmic and paid search results in the same order as would be provided in response to the same inputs on web sites that are owned or operated by or for Microsoft, its subsidiaries and its joint venture relationships (“Microsoft O&O Properties”) in a particular country, including any content that is included in Microsoft’s algorithmic index; (c) for prioritization parity, under which Yahoo! will have full visibility into Microsoft product roadmap and parity with Microsoft’s internal teams in the product update prioritization process; and (d) for advertising parity under which neither party will allow advertisers to designate paid listings from Microsoft’s paid search or encourage advertisers to designate paid listings from Microsoft’s contextual advertising services to be displayed exclusively on Microsoft’s or Yahoo!’s respective results web pages. Furthermore, Microsoft will not treat Yahoo! or Yahoo!’s Syndication Partners less favorably than Microsoft and Microsoft’s partners in connection with its delivery and operation of the services.

Microsoft will optimize the delivery of paid listings by evaluating performance across all Microsoft O&O Properties and the Yahoo! Properties. The paid listings provided by Microsoft for Yahoo! will be optimized at parity with Microsoft’s optimization for Microsoft O&O Properties. Yahoo! may further optimize based on its own desired implementation.

Yahoo! may, at its option, elect to have Microsoft deliver the algorithmic search services and paid search services through a search results page hosted by Microsoft (the “White Label Solution”) on a country by country basis (if the United States is also a White Label Solution country), instead of through the Microsoft API. The White Label Solution will be in all material respects the same as Microsoft’s search results pages. Yahoo! may substitute Yahoo! applications or services for Microsoft applications or services within the White Label Solution.

Data Provisions

Microsoft will provide Yahoo! all data it collects as a result of its implementation of the services on Yahoo! Properties and Syndication Properties and, subject to Yahoo!’s privacy policies and applicable law, Yahoo! may use such data without contractual restriction in connection with its businesses. Microsoft will also use commercially reasonable efforts to enable Yahoo! and its Syndication Partners to obtain any other data that Yahoo! currently collects with respect to its own algorithmic search services and paid search services. Microsoft may obtain and use the data it collects as a result of its implementation of the services (including any derivative information that results from this data) only for the purpose of operating and enhancing the services and not for other Microsoft products and services.

Transition and Implementation Plan

As promptly as practicable, Yahoo! and Microsoft will agree on a detailed transition and implementation plan and schedule for implementing Microsoft’s algorithmic search services and paid search services on all Yahoo! Properties and Syndication Properties. The transition and implementation plan will be for a period of no longer than 24 months from the Commencement Date, subject to an extension for up to three additional months if the end of the 24-month period ends during the fourth quarter of a calendar year. The parties intend that the transition and implementation plan will be either set forth in a separate transition services agreement or as part of the Search Agreement.

Following the Commencement Date, Microsoft will hire not less than 400 Yahoo! employees (the “Transferred Employees”) and will offer the Transferred Employees market competitive compensation packages. In addition, Yahoo! and Microsoft will mutually agree on a retention plan to be paid for by Microsoft to assist in retaining the Transferred Employees and an additional 150 Yahoo! employees to be mutually agreed upon between Microsoft and Yahoo! to assist with providing the transition services.

License Agreement

Pursuant to the Letter Agreement, the parties have agreed to enter into a License Agreement (the “License Agreement”), which will include, among other provisions, the terms summarized below.

Exclusive Technology License

During the Term (as defined in the summary of the Search Agreement above), Yahoo! will grant to Microsoft a worldwide license (the “Technology License”) under copyrights and trade secrets relating to specified Yahoo! algorithmic and paid search technology for Microsoft to use in connection with providing specified algorithmic search, paid search and contextual advertising services (the “Field of Use”). The Technology License will be exclusive (even as to Yahoo!) as to certain algorithmic search and paid search services in the Field of Use. Upon termination or expiration of the Search Agreement, the Technology License will remain in effect but will become non-exclusive.

Limited Non-Exclusive Patent Cross License

During the Term, Yahoo! will grant to Microsoft a worldwide, non-exclusive limited patent license solely for Microsoft to provide services in the Field of Use to Yahoo!; and Microsoft will grant to Yahoo! a worldwide, non-exclusive limited patent license for Yahoo! to use and implement the services provided by Microsoft, as contemplated by the Search Agreement (the “Limited Patent Cross License”). The Limited Patent Cross License terminates upon the termination of the Search Agreement.

Patent License Option

Microsoft will also have an option to obtain from Yahoo! a worldwide, non-exclusive license under Yahoo!’s patents for Microsoft to provide online services in the Field of Use both with Microsoft’s owned and operated websites and to third parties (“Patent License”). The option will expire upon the earlier of July 29, 2011 and the date six (6) months following the Commencement Date. Should Microsoft exercise its option to obtain the Patent License, Microsoft will pay for such Patent License at a specified discount from fair market value. Such Patent License will also terminate upon termination of the Search Agreement.

Yahoo! may terminate the Patent License if Microsoft files an infringement action against Yahoo!, Yahoo! subsidiaries or Yahoo! joint venture relationships. Termination of the Patent License does not affect Microsoft’s obligations under the Search Agreement.

Assignment and Transfer

Microsoft may not assign the License Agreement without Yahoo!’s permission. Assignment or transfer of the licensed technology will be subject to the licenses. Neither party is prevented or restricted from licensing, selling or otherwise disposing of any of its patent assets, and Microsoft’s option to obtain the Patent License will not apply to any patents sold or otherwise disposed of by Yahoo! prior to the exercise of the option.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

YAHOO! INC. (Registrant)
By: /s/ Michael J. Callahan
Name: Michael J. Callahan
Title: Executive Vice President, General Counsel and Secretary
Date: August 4, 2009

After all the investor hubbub over the oh-no-they-didn’t deal between Yahoo and Microsoft starts to die down a bit, the pair are now embarking on the path that is the only way toward proving the efficacy of them joining together.

That would be getting a variety of state, federal and international regulators to say yes to the wide-ranging online advertising and search arrangement they announced last week so they can start making it work.

According to sources at both companies, a variety of filings will be made this week, including one to the Securities and Exchange Commission that should provide more details of the partnership.

When it was unveiled last Wednesday, the companies said Microsoft (MSFT) will run search technology for the two, while Yahoo (YHOO) will sell the premium search advertising.

That SEC filing could answer a number of questions some still have about the deal, such as whether there is a large break-up fee that Microsoft would pay Yahoo in case the deal is scuttled.

That’s just the outcome that Microsoft and Yahoo are trying to avoid.

“We think of it as an outreach effort to explain how we are creating a strong No. 2 to Google,” said one source close to the situation. “The main goal will be to show that a better competitor in the marketplace is a good thing.”

While the companies are prepping for opposition from Google (GOOG), sources close to the thinking at the dominant search company said it is more likely to be muted and indirect.

That’s especially true since a MicroHoo makes Google–currently under a lot more government scrutiny than ever before–look like less of a bully.

Thus, Google’s tactics would entail less direct statements and more pointing out the discrepancies between what Microsoft said when Google tried to get approval for a search deal with Yahoo last year and what it argues now.

“They will probably not be that obvious, but they will be there still,” said Microsoft CEO Steve Ballmer to me, in an off-hand remark at the software giant’s Financial Analyst Meeting last week.

It’s a game of legal chicken that Ballmer knows well.

Already, for example, Microsoft and Yahoo execs have been aggressively reaching out to major publishers and advertisers to get their staunch support.

That included calls immediately after the deal was announced last Wednesday to such execs as Martin Sorrell of the WPP Group (WPPGY) and Jeff Zucker, CEO of NBC Universal, a unit of GE (GE).

In Washington, D.C., both companies have legions of lawyers to try to make sure the Justice Department, which will review the case due to its antitrust implications, has all the information it might need.

And, more to the point, they want to avoid the debacle that took place when Yahoo and Google tried to get approval for their failed deal last year.

That deal was ended by Google after it became clear that Justice was going to fight it by arguing that top search companies hooking up hurt competition and stifled innovation.

In addition, there might be Congressional scrutiny, with possible hearings, similar to those held when the Yahoogle deal was pending, such as in the Senate Judiciary Antitrust Subcommittee.

And, of course, there are actually independent groups concerned and they have also been in contact with regulators.

“There are questions that must be answered regarding the collection and sharing of consumer data by the two companies,” said Jeff Chester, executive director of the Center for Digital Democracy, a D.C.-based group that works to promote consumer privacy and protection online, in a statement last week. “While the rationale for the deal is to provide some much needed competition to Google (and income for Yahoo), the further consolidation of the global digital advertising system should be a concern to Internet users, privacy advocates, online marketers, and competition regulators.”

Sources said Microsoft and Yahoo also plan to petition regulators in the European Union this week, which is likely to be most concerned about privacy issues involved in their union.

They will also be doing the same in other key countries worldwide, such as Korea, Taiwan and Brazil.

And, finally, given how involved state attorneys general became in beaching the Yahoo deal to partner with Google, they also will be starting outreach to key states, such as California, where Silicon Valley-based Yahoo is headquartered.

“Once again, it will be the Lawyer Employment Act of 2009,” joked one person close to the deal. “At least, that shows there is some economic benefit to this deal already.”

While we all wait in breathless regulatory anticipation, here are interviews I did at last year’s Senate hearings on Yahoogle, with lawyers from Google (David Drummond), Microsoft (Brad Smith) and Yahoo (Mike Callahan).

Incredibly, they are the very same lawyers who will be pretzeling themselves in entirely different shapes than they pretzeled themselves a year ago.

I would expect nothing less!

Here’s the video:

]]> http://allthingsd.com/20090804/yahoo-microsoft-regulatory-filings-begin-this-week-let-the-legal-game-playing-begin/feed/ 0 http://allthingsd.com/20090804/microsofts-point-man-on-search-satya-nadella-speaks-its-a-game-of-scale/ http://allthingsd.com/20090804/microsofts-point-man-on-search-satya-nadella-speaks-its-a-game-of-scale/#comments Tue, 04 Aug 2009 07:33:31 +0000 Kara Swisher http://kara.allthingsd.com/?p=16939

Another Microsoft exec BoomTown spoke to–while in Seattle last week–was Satya Nadella, SVP of Research and Development at its Online Services division, also known as the man in charge of search and online advertising technology for the just-struck partnership with Yahoo.

Nadella came to Microsoft in 1992 from Sun Microsystems (JAVA)–much like another company lifer and key dealmaker in the Yahoo partnership, Yusuf Mehdi, whom I also interviewed via video here.

After all that time, though, Nadella is probably facing his biggest challenge yet.

Because how the search business of Microsoft (MSFT) evolves, improves and, most of all, out-innovates–especially in the face of heretofore withering competition from search behemoth Google (GOOG)–is going to be a big factor in the success of the deal with Yahoo (YHOO).

In fact, the Silicon Valley Internet giant has essentially put its search technology eggs in the software company’s work-in-progress basket.

Now the Microsoft team must make a series of innovative tech leaps in order to grab more market share beyond what the pair bring to the table together.

Nadella, who was one of the key execs involved in the deal, has to make sure the companies hold onto top talent until the partnership is approved, while continuing to keep up the momentum of its new Bing search offering.

No pressure, Satya!

Nadella does acknowledge in the video interview here that Microsoft has has not been able to catch up with Google and talks about how that might now be possible.

Watch:

]]> http://allthingsd.com/20090804/microsofts-point-man-on-search-satya-nadella-speaks-its-a-game-of-scale/feed/ 1 http://allthingsd.com/20090803/microsofts-yusuf-mehdi-speaks-yahoo-has-a-fantastic-opportunity/ http://allthingsd.com/20090803/microsofts-yusuf-mehdi-speaks-yahoo-has-a-fantastic-opportunity/#comments Mon, 03 Aug 2009 20:12:38 +0000 Kara Swisher http://kara.allthingsd.com/?p=16911

BoomTown visited Microsoft HQ in Redmond, Wash., last week, right after the online advertising and search deal with Yahoo was struck.

While there, I interviewed a passel of Microsoft (MSFT) execs, including Online Audience Business SVP Yusuf Mehdi, who has been a key player in the many–and mostly disastrous–attempts that the software giant has made to form some sort of alliance with Yahoo (YHOO) over the years.

It finally stuck for Mehdi, who has been with Microsoft for closing in on two decades (although he still kind of looks like a teenager).

In this video interview with me, he talks about the deal, defending it as a “win-win”–what else is he going to say?–for both companies.

While Wall Street threw raspberries at the Silicon Valley icon for giving away its search technology business without an adequate payoff, Microsoft got kudos for grabbing a large piece of share that it could use in its ongoing battle with archrival Google (GOOG).

And that much is true–now, it is execs like Mehdi who are charged with using the new purchase to try to unseat Google’s dominance in search, which is a little bit of a harder job than doing a Yahoo deal.

Here’s the video:

]]> http://allthingsd.com/20090803/microsofts-yusuf-mehdi-speaks-yahoo-has-a-fantastic-opportunity/feed/ 0 http://allthingsd.com/20090731/steve-ballmer-unplugged-the-puppet-edition/ http://allthingsd.com/20090731/steve-ballmer-unplugged-the-puppet-edition/#comments Fri, 31 Jul 2009 22:21:52 +0000 Kara Swisher http://kara.allthingsd.com/?p=16899

BoomTown is spending the day at Microsoft (MSFT) HQ in Redmond, Wash., interviewing a passel of execs about the Yahoo online advertising and search partnership (videos to come soon!).

But, while here, I have not been able to resist trotting out this very funny puppet video by 1938 Media of sweat-stained Microsoft CEO Steve Ballmer gone wild, screaming about how he smoked Yahoo (YHOO) in the deal, to every Softie I see.

Because I am that sensitive.

Enjoy:

]]> http://allthingsd.com/20090731/steve-ballmer-unplugged-the-puppet-edition/feed/ 2 http://allthingsd.com/20090731/boatloads-of-money-brings-boatloads-of-trouble-to-yahoos-bartz-the-video-plus-how-the-deal-almost-sunk/ http://allthingsd.com/20090731/boatloads-of-money-brings-boatloads-of-trouble-to-yahoos-bartz-the-video-plus-how-the-deal-almost-sunk/#comments Fri, 31 Jul 2009 08:16:27 +0000 Kara Swisher http://kara.allthingsd.com/?p=16875

One of the reasons Wall Street investors have gone sour on Yahoo’s stock since its online advertising and search deal with Microsoft was announced is due a much-repeated comment that CEO Carol Bartz made at the seventh D: All Things Digital conference in late May.

In an onstage interview with me, I asked Bartz about how talks with Microsoft (MSFT)–about which I had reported a lot–were going and what it would take to do a deal.

She answered quite emphatically that “if there’s boatloads of money, and there’s the right technology and there’s the right information we’d have, sure.” Bartz repeated “boatload of money” soon after.

And, since she said that’s what she wanted, Wall Street had expected such a windfall immediately in the deal.

But, with no upfront payment forthcoming–despite the fact that Bartz said she opted for money over a longer timeframe via better search monetization from Microsoft–Yahoo (YHOO) has seen its shares get pummeled.

The stock was down 12 percent when the deal was signed Tuesday and almost four percent today, giving up a lot of the gains that have been made since Bartz came on board in January.

Ironically, in an interview with me right after the deal was struck, both Bartz and Microsoft CEO Steve Ballmer told me it was at a meeting they had at D7 that they decided to call an end to the talks that had been going on since March.

The reason was that a plan to also share display advertising was on the table and it had added a level of complexity that was too hard to bridge.

“We agreed to walk away, the game was over,” said Bartz. “It was our ‘hasta luego.’”

Well, not for long, as the execs under them both regrouped and came up with the simpler search plan–a deal that Yahoo investors are still unsatisfied with.

Now, it will be up the Bartz to convince them that their ship will–eventually–come in.

Until then, here’s the “boatloads of money” video clip:

]]> http://allthingsd.com/20090731/boatloads-of-money-brings-boatloads-of-trouble-to-yahoos-bartz-the-video-plus-how-the-deal-almost-sunk/feed/ 1 http://allthingsd.com/20090730/live-from-redmond-microsofts-lu-hearts-hoo-plus-business-guy-elop-and-and-server-guy-muglia/ http://allthingsd.com/20090730/live-from-redmond-microsofts-lu-hearts-hoo-plus-business-guy-elop-and-and-server-guy-muglia/#comments Thu, 30 Jul 2009 22:05:58 +0000 Kara Swisher http://kara.allthingsd.com/?p=16840

Isn’t it ironic that Yahoo once employed–and for a very long time–top search techie Qi Lu and here he was on stage today at the Financial Analyst Meeting at Microsoft HQ in Redmond, Wash., after having just scooped up that business for the software giant.

Lu, who is now president of the Online Services division at Microsoft (MSFT), was a key player in the deal that was announced yesterday between it and Yahoo (YHOO), under which Microsoft licensed Yahoo’s search technology for a decade.

Lu was not generous with the details, although he did say making the partnership work was his No. 2 priority after Microsoft’s own search business. No. 3 was being financially responsible.

Said Lu, in part: “First, search is our number–one priority…second, a big priority for us is implement the Yahoo partnership. It is a 10-year partnership. We’re absolutely committed in spirit, in everything we did to deliver the true economic values, consumer benefits, customer benefits for advertisers, publishers all around.”

Because of the scale it brings, Lu said that the deal has the potential to be lucrative, despite the fact that Wall Street thinks Yahoo sold out of its search technology too cheaply.

But he also tried to manage expectations. “And I keep telling my teams, we want to be brutally honest about where we are…and understand the hurdles we have to overcome,” said Lu.

Microsoft Business President Stephen Elop, who was on next, talked a lot about how Microsoft was dealing with the tough economy and its impact on the company’s software business.

He also gave updates about a range of its various products, including the upcoming Office 2010.

“Now, despite the difficult economic challenges, despite the end of a product cycle, what we believe, as evidenced by the strength of our annuity business, is that there’s incredible excitement out there in the market because of Office 2010,” said Elop. “So, at a time when we expect business productivity or business spending climate to improve, we are launching the most innovative wave of technology we have ever launched.”

Elop used the term “attach rate” to talk about the how users relate to Microsoft software, although I have often thought about how much I wanted to get a divorce from Microsoft Outlook.

After Elop, another business-type exec, Servers and Tools President Bob Muglia, who also had to deliver not-such-great news.

Said Muglia: “What we saw was that as the economy got soft, so did the customer buying, the business buying for servers, and starting around the middle of October into the end of our fiscal second quarter, and certainly through the entire part of our second fiscal half, this calendar year, we’ve seen a pretty dramatic decline in the server marketplace.”

And, after that, when he started talking annuity sales, virtualization and modular data centers–I’ll admit it–this is precisely the moment when I went out for an emergency cookie run.

After Q&A with Elop and Muglia, next up: CFO Chris Liddell (and his delightful New Zealand accent) to talk about–hopefully–Microsoft’s billion-dollar revenue miss in its most recent quarter.

]]> http://allthingsd.com/20090730/live-from-redmond-microsofts-lu-hearts-hoo-plus-business-guy-elop-and-and-server-guy-muglia/feed/ 0 http://allthingsd.com/20090730/microhoo-time-to-begin-the-hard-sell-talking-points-docs/ http://allthingsd.com/20090730/microhoo-time-to-begin-the-hard-sell-talking-points-docs/#comments Thu, 30 Jul 2009 19:36:13 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=22478 Speaking at Microsoft’s Financial Analyst Meeting this morning in Redmond, Microsoft CEO Steve Ballmer expressed surprised at the poor reception given the company’s new search advertising partnership with Yahoo by Yahoo investors.

“This is the one that stuns me, that people haven’t figured it out,” Ballmer said of investor response to the “boatloads of value” the deal will supposedly bring to Yahoo. “It’s sort of, like, unbelievable.”

As Kara quipped earlier this morning, “Believe it, Steve, especially since everyone thinks Microsoft pulled a fast one on Yahoo.”

And so, to convince them otherwise, Microsoft (MSFT) and Yahoo (YHOO) have fired up the “Choice. Value. Innovation.” propaganda machine to reassure us all that this is exactly what the their partnership will bring. Below, the first broadsides to issue from that machine, which Microsoft has confirmed are authentic: What Experts are Saying About the Microsoft-Yahoo! Deal and The Yahoo!-Microsoft Search Deal: Benefits to Consumers, Customers and the Internet.

The Yahoo_-Microsoft Search Deal – Benefits to Consumers_ Customers and the Internet

What Experts are Saying about Microsoft-Yahoo Deal

]]> http://allthingsd.com/20090730/microhoo-time-to-begin-the-hard-sell-talking-points-docs/feed/ 1 http://allthingsd.com/20090730/live-from-redmond-microsofts-ballmer-says-to-stop-beating-up-on-yahoo-also-hes-counting-apples/ http://allthingsd.com/20090730/live-from-redmond-microsofts-ballmer-says-to-stop-beating-up-on-yahoo-also-hes-counting-apples/#comments Thu, 30 Jul 2009 17:08:27 +0000 Kara Swisher http://kara.allthingsd.com/?p=16799

BoomTown is here at Microsoft HQ in Redmond, Wash., where a panoply of top execs from the company is giving a full day of presentations to a roomful of Wall Street analysts and media folks at its annual Financial Analyst Meeting.

First up, as you might imagine, is CEO Steve Ballmer, who is as bouncy and braggy as I have ever seen him, probably because he is fresh from getting his mitts on a long-sought-after prize–the search business of Yahoo (YHOO).

But, while the media and investors think Microsoft (MSFT) made out well in the online search and advertising deal, the opinion about Yahoo’s side of the deal has been not so positive.

Actually, tragic, with Yahoo shares down another five percent today already, after plummeting 12 percent yesterday. Look out below!

Thus, Ballmer to the rescue!

“This is the one that stuns me, that people haven’t figured it out,” said Ballmer, pointing out that Yahoo cut costs and gets to keep revenue. “It’s sort of, like, unbelievable.”

Believe it, Steve, especially since everyone thinks Microsoft pulled a fast one on Yahoo.

Otherwise, Ballmer gave a relatively upbeat speech about the software giant, even after a tough year for Microsoft, due to the weak economy and the fall-off of sales of personal computers.

Ballmer had computers on the brain, especially those of competitors, like Apple (AAPL), which was popular with the audience.

“We have low share, by the way, in the investor audience. I can see the Apple logos versus the PC logos,” he joked. “Our share is lower in this audience than the average audience. Don’t hide it. I’ve already counted them. I have been doing that since we started talking.”

I wonder if Big Brother, oops, Ballmer, also took note of my iPhone and browser open to Google (GOOG) search.

As is part of the reliable Ballmer act, along with Apple-bashing, there was Google-bashing, Linux-bashing and general Anybody-But-Microsoft-Bashing.

But, bullies, be warned! There will be no more Yahoo-bashing from you or Microsoft–well, on the record, at least!–or you’ll apparently have to answer to He-Man Ballmer.

]]> http://allthingsd.com/20090730/live-from-redmond-microsofts-ballmer-says-to-stop-beating-up-on-yahoo-also-hes-counting-apples/feed/ 1 http://allthingsd.com/20090730/microsofts-financial-analysts-meeting-today-billion-dollar-belly-flop-with-a-side-of-yahoo/ http://allthingsd.com/20090730/microsofts-financial-analysts-meeting-today-billion-dollar-belly-flop-with-a-side-of-yahoo/#comments Thu, 30 Jul 2009 14:59:28 +0000 Kara Swisher http://kara.allthingsd.com/?p=16783

The fun never stops at Microsoft, it seems.

Well, not fun–more like a long march of khaki-clad Softies.

They will be on display bright and early this morning at the company’s annual Financial Analyst Meeting, a cavalcade of top execs at the tech giant blabbing away.

BoomTown will be there covering it in person, natch!

The Microsoft management smorgasbord includes:

CEO Steve Ballmer, COO Kevin Turner, Entertainment and Devices President Robbie Bach, Online Services President Qi Lu, Microsoft Business President Stephen Elop, Servers and Tools President Bob Muglia, Chief Research and Strategy Officer Craig Mundie, Chief Software Architect Ray Ozzie and CFO Chris Liddell.

I am betting that most of the focus at the gathering, which is being held at the worldwide HQ of Microsoft (MSFT) in Redmond, Wash., will likely be on two major events over the last week–its billion-dollar revenue miss in its fourth quarter and its just-born search and online advertising deal with Yahoo (YHOO).

The former, of course, was bad news for Microsoft, as it continues to signal weakness in its core operating system software and server businesses, due to lower demand for personal computers in the midst of the econalypse.

The latter was good news, of course, since Microsoft seemed to score a coup in nabbing the search technology business from Yahoo with no big upfront payments.

I have a lot of questions about both these issues, as will the crowd of reporters and Wall Street sharpies at the FAM, which is what they call the meeting here.

There could even be be plenty of answers, especially given that the entire leadership of Microsoft will be there.

Here is a link to a live Webcast of the FAM event, if you want to join the party too.

]]> http://allthingsd.com/20090730/microsofts-financial-analysts-meeting-today-billion-dollar-belly-flop-with-a-side-of-yahoo/feed/ 3 http://allthingsd.com/20090729/hey-bartz-where-are-those-boatloads-of-money-you-were-talking-about/ http://allthingsd.com/20090729/hey-bartz-where-are-those-boatloads-of-money-you-were-talking-about/#comments Wed, 29 Jul 2009 21:06:40 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=22412 Wall Street is finally having its say about the newly announced Microsoft-Yahoo deal, and while opinions are mixed, there is some consensus on who got the better end of the deal: Microsoft.

Seems the Street would have much preferred the “boatloads of money” Yahoo CEO Carol Bartz once said she’d demand for a search deal, than the “boatloads of value” she claims to have given them this morning. As I write this, Yahoo (YHOO) shares are trading down more than 12 percent at $15.14. Microsoft (MSFT) shares are up 1.41 percent at $23.80.

Below, a roundup of analyst notes that have been issued on the deal.

Jeff Lindsay, Bernstein Research: We believe Yahoo!’s search deal represents a significant positive for the company’s economics, as both Yahoo! and MSFT were too subscale to compete effectively versus Google. Although the combined 30% search share is still less than half the size of Google, both Yahoo! and MSFT will realize significant cost savings from combining their search technologies. In addition, the greater scale should increase the effectiveness of the search engine, driving revenue synergies through improved search monetization.

Sarah Friar, Goldman Sachs: We view the deal as positive for Microsoft as terms are better for the company than had been speculated (no upfront fee; 88% TAC) and the combined market share provides scale to drive efficiency and legitimacy/relevancy for Microsoft’s online investments. Yahoo!’s $3.0 bn/year search sales translates to $360 mn/year for Microsoft in revenues. Microsoft will incur incremental expenses when the deal closes (expected early CY10), but limited (if any) impact on FY10E and while investments will continue into FY11, our model already assumes sizable expenses.

Douglas Anmuth, Barclays: YHOO-MSFT terms not nearly as favorable as anticipated, but we believe deal is neutral to the co’s L-T positioning. We would have liked to have seen an upfront payment, higher TAC, & rev share on Bing.com searches among other things, but we like that YHOO maintains ability to sell search adv, & therefore relationship with its largest advertisers. It’s unclear how favorable the deal will be to YHOO over time, but our fundamental reasons for owning shares remain the same. We expect better execution on the audience & content biz & specifically within display adv., & we believe YHOO will be able to take out a meaningful amount of costs from the biz aside from search tech. over the next couple yrs.

Peter Misek, Cannacord Adams: We are relieved that Microsoft did not have to provide an upfront payment as part of this deal while effectively garnering more scale. This deal provides Microsoft with a much needed boost in competing with Google (GOOG : NASDAQ : US$435.00 | BUY) as its search algorithm, Bing, is being catapulted to greater market share. In addition, utilizing Yahoo!’s sales force for premium search will allow Microsoft to lower expenses over the duration of the partnership while attempting to attract a greater level of advertisers for the combined platforms. We believe this is a much needed relief for Microsoft, but is one step in a greater battle. In the end this doesn not solve Microsoft’s competitive disadvantage with Google. Rather we think it accelerates Microsoft’s desire to think outside the box and come up with a non-linear way to catch Google.

Heath Terry and Andrew Thomas, FBR Capital Markets: The lack of an up-front payment, no minimum revenue guarantee, and a revenue share that, while above average, is slightly below the +90% that larger deals command make for a lackluster deal for Yahoo!, in our opinion. The lack of any display component to the deal also seems like a missed opportunity for the company. As we see it, the only financial benefit to Yahoo! is the ability to shed the not insignificant technology costs associated with running a search engine. According to the company, this should result in an annual benefit to GAAP operating income of $500M….Restructuring these two businesses and untangling them from their existing partnerships and internal ties will be a massive organizational challenge for both companies.

Mark Mahaney, Citi Investment Research: Implications For YHOO – Positives: 1) YHOO believes deal would generate incremental $250MM in annual cash flow (17% accretive to our ’09 est)–assumptions very hard to test, but magnitude is reasonably conservative; 2) 88% TAC is higher than industry average, but as expected given deal size. Challenges: 1) No upfront payment to YHOO is a negative vs. expectations, tho guaranteed RPS provides significant backstop; 2) Lack of display advertising deal is a negative vs. expectations; & 3) Acknowledgment of YHOO’s Search technology limitations.

Todd Greenwald, Signal Hill Capital Group: The deal announced today will take a very long time to come to fruition we think, and will face several challenges–it will face regulatory hurdles given Microsoft’s antitrust history (though we’d expect it to ultimately get through given Google’s dominance). Additionally, it seems hard to fathom operationally, as it will require Yahoo’s salespeople to be selling Microsoft’s technology. Advertisers will want one point of contact (which would be Yahoo), though that point of contact won’t be entirely responsible for what they are selling–instead of bringing in an engineer from within the same building, the Yahoo salesperson may have to coordinate with a Microsoft employee up in Redmond. Not impossible, just tricky. And considering how smooth and automated the process of buying ads is on Google’s platform, this could prove to be a competitive disadvantage.

Mark May, Needham & Company: Search advertising is not a zero sum game, in our opinion. If Microsoft is able to make Yahoo! (and Microsoft) search more effective through this deal/combination, then we believe is will result in advertising spending more on the new search platform but not less on the Google platform. A more effect Yahoo!/Microsoft search platform does not mean Google search becomes less effective, and we believe there is more demand than supply for effective search marketing. The dollars will likely come from other, less effective, buckets.

Business 101 convincingly argues that most large M&A deals and partnerships are not successful. And, most large-scale Internet media M&A deals and partnerships have tended to under-perform their original promise (e.g., AOL Time Warner, Google/MySpace, etc.). Moreover, in the case of Yahoo!/Microsoft Search, you have two very different cultures and an expected 24 month transition process. The odds are stacked against this deal having a meaningfully impact on Google. And, over the next 2+ years while Yahoo! and Microsoft are trying to transition, Google will be innovating.

]]> http://allthingsd.com/20090729/hey-bartz-where-are-those-boatloads-of-money-you-were-talking-about/feed/ 1 http://allthingsd.com/20090729/hey-bartz-where-are-those-boatloads-of-money-you-were-talking-about-2/ http://allthingsd.com/20090729/hey-bartz-where-are-those-boatloads-of-money-you-were-talking-about-2/#comments Wed, 29 Jul 2009 21:06:40 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=22412 Wall Street is finally having its say about the newly announced Microsoft-Yahoo deal, and while opinions are mixed, there is some consensus on who got the better end of the deal: Microsoft.

Seems the Street would have much preferred the “boatloads of money” Yahoo CEO Carol Bartz once said she’d demand for a search deal, than the “boatloads of value” she claims to have given them this morning. As I write this, Yahoo (YHOO) shares are trading down more than 12 percent at $15.14. Microsoft (MSFT) shares are up 1.41 percent at $23.80.

Below, a roundup of analyst notes that have been issued on the deal.

Jeff Lindsay, Bernstein Research: We believe Yahoo!’s search deal represents a significant positive for the company’s economics, as both Yahoo! and MSFT were too subscale to compete effectively versus Google. Although the combined 30% search share is still less than half the size of Google, both Yahoo! and MSFT will realize significant cost savings from combining their search technologies. In addition, the greater scale should increase the effectiveness of the search engine, driving revenue synergies through improved search monetization.

Sarah Friar, Goldman Sachs: We view the deal as positive for Microsoft as terms are better for the company than had been speculated (no upfront fee; 88% TAC) and the combined market share provides scale to drive efficiency and legitimacy/relevancy for Microsoft’s online investments. Yahoo!’s $3.0 bn/year search sales translates to $360 mn/year for Microsoft in revenues. Microsoft will incur incremental expenses when the deal closes (expected early CY10), but limited (if any) impact on FY10E and while investments will continue into FY11, our model already assumes sizable expenses.

Douglas Anmuth, Barclays: YHOO-MSFT terms not nearly as favorable as anticipated, but we believe deal is neutral to the co’s L-T positioning. We would have liked to have seen an upfront payment, higher TAC, & rev share on Bing.com searches among other things, but we like that YHOO maintains ability to sell search adv, & therefore relationship with its largest advertisers. It’s unclear how favorable the deal will be to YHOO over time, but our fundamental reasons for owning shares remain the same. We expect better execution on the audience & content biz & specifically within display adv., & we believe YHOO will be able to take out a meaningful amount of costs from the biz aside from search tech. over the next couple yrs.

Peter Misek, Cannacord Adams: We are relieved that Microsoft did not have to provide an upfront payment as part of this deal while effectively garnering more scale. This deal provides Microsoft with a much needed boost in competing with Google (GOOG : NASDAQ : US$435.00 | BUY) as its search algorithm, Bing, is being catapulted to greater market share. In addition, utilizing Yahoo!’s sales force for premium search will allow Microsoft to lower expenses over the duration of the partnership while attempting to attract a greater level of advertisers for the combined platforms. We believe this is a much needed relief for Microsoft, but is one step in a greater battle. In the end this doesn not solve Microsoft’s competitive disadvantage with Google. Rather we think it accelerates Microsoft’s desire to think outside the box and come up with a non-linear way to catch Google.

Heath Terry and Andrew Thomas, FBR Capital Markets: The lack of an up-front payment, no minimum revenue guarantee, and a revenue share that, while above average, is slightly below the +90% that larger deals command make for a lackluster deal for Yahoo!, in our opinion. The lack of any display component to the deal also seems like a missed opportunity for the company. As we see it, the only financial benefit to Yahoo! is the ability to shed the not insignificant technology costs associated with running a search engine. According to the company, this should result in an annual benefit to GAAP operating income of $500M….Restructuring these two businesses and untangling them from their existing partnerships and internal ties will be a massive organizational challenge for both companies.

Mark Mahaney, Citi Investment Research: Implications For YHOO – Positives: 1) YHOO believes deal would generate incremental $250MM in annual cash flow (17% accretive to our ’09 est)–assumptions very hard to test, but magnitude is reasonably conservative; 2) 88% TAC is higher than industry average, but as expected given deal size. Challenges: 1) No upfront payment to YHOO is a negative vs. expectations, tho guaranteed RPS provides significant backstop; 2) Lack of display advertising deal is a negative vs. expectations; & 3) Acknowledgment of YHOO’s Search technology limitations.

Todd Greenwald, Signal Hill Capital Group: The deal announced today will take a very long time to come to fruition we think, and will face several challenges–it will face regulatory hurdles given Microsoft’s antitrust history (though we’d expect it to ultimately get through given Google’s dominance). Additionally, it seems hard to fathom operationally, as it will require Yahoo’s salespeople to be selling Microsoft’s technology. Advertisers will want one point of contact (which would be Yahoo), though that point of contact won’t be entirely responsible for what they are selling–instead of bringing in an engineer from within the same building, the Yahoo salesperson may have to coordinate with a Microsoft employee up in Redmond. Not impossible, just tricky. And considering how smooth and automated the process of buying ads is on Google’s platform, this could prove to be a competitive disadvantage.

Mark May, Needham & Company: Search advertising is not a zero sum game, in our opinion. If Microsoft is able to make Yahoo! (and Microsoft) search more effective through this deal/combination, then we believe is will result in advertising spending more on the new search platform but not less on the Google platform. A more effect Yahoo!/Microsoft search platform does not mean Google search becomes less effective, and we believe there is more demand than supply for effective search marketing. The dollars will likely come from other, less effective, buckets.

Business 101 convincingly argues that most large M&A deals and partnerships are not successful. And, most large-scale Internet media M&A deals and partnerships have tended to under-perform their original promise (e.g., AOL Time Warner, Google/MySpace, etc.). Moreover, in the case of Yahoo!/Microsoft Search, you have two very different cultures and an expected 24 month transition process. The odds are stacked against this deal having a meaningfully impact on Google. And, over the next 2+ years while Yahoo! and Microsoft are trying to transition, Google will be innovating.

]]> http://allthingsd.com/20090729/hey-bartz-where-are-those-boatloads-of-money-you-were-talking-about-2/feed/ 0 http://allthingsd.com/20090729/yahoo-gag-reel-redux/ http://allthingsd.com/20090729/yahoo-gag-reel-redux/#comments Wed, 29 Jul 2009 19:00:11 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=8600

[ See post to watch video ]

Once again for old time’s sake, the Yahoo (YHOO)-Microsoft (MSFT) soap opera in Digital Daily intros, with apologies to Steven Spielberg, Mel Blanc, Queen, Neil Diamond, Barbra Streisand, Tallulah Bankhead, Marlene Dietrich and the entire cast of “The Sound of Music.” (Originally published June 16, 2008.)

]]> http://allthingsd.com/20090729/yahoo-gag-reel-redux/feed/ 2 http://allthingsd.com/20090729/wwgd-what-will-google-do-now-that-there-finally-might-be-a-microhoo/ http://allthingsd.com/20090729/wwgd-what-will-google-do-now-that-there-finally-might-be-a-microhoo/#comments Wed, 29 Jul 2009 13:54:13 +0000 Kara Swisher http://kara.allthingsd.com/?p=16649

With upward of two-thirds of the search market, depending on what survey you use, one would not imagine that Google would worry too much about any kind of hookup of Microsoft and Yahoo.

Think again.

While several sources at Google (GOOG), even off the record, have professed to me that they are not that worried about any search and online advertising deal the pair have finally struck, others admit that a more robust rival will force the company to compete and innovate more aggressively.

“We take nothing for granted, because anyone can make a comeback,” said one person at Google, who points to Microsoft’s laudable efforts with its Bing search service. “Especially with Microsoft’s deep pockets and Yahoo’s talent in the advertising market.”

Sources close to the situation said Google will likely try to keep a low profile at first in opposing the deal announced today, positing that regulators have the same opinion about fewer competitors in the market as they did when opposing a similar Google-Yahoo search deal last year.

“Is Google siccing the dogs on this deal?” asked one person familiar with Google’s thinking. “Or will it wait for regulators to cast scrutiny on a deal that drops the number of competitors from three to two?”

Still, having three in the market has not been enough to lift the share of Yahoo or Microsoft very much in comparison to Google over the last several years.

According to a comScore (SCOR) report for June, for example, even combined, Microsoft (MSFT) and Yahoo (YHOO) have a share that is less than half that enjoyed by Google.

Microsoft accounted for 8.4 percent of the search market in the month, with Yahoo clocking in at 20 percent. Google grabbed the lion’s share at 65 percent.

And that dominance means a financial windfall–as volume means more queries means better search ads means better relevance in an ever-virtuous and very lucrative cycle.

It is a cycle Google would like to keep intact, so much so that it made what turned out to be a very risky move to block Microsoft when it was trying to take over Yahoo last year.

Regulators ended up raising federal eyebrows about the proposed Yahoo-Google search deal, which was less sweeping than the Micosoft-Yahoo one announced today.

Google dumped Yahoo in the end–although not before the company found itself front and center on antitrust radar screens.

And there it has remained, with Christine Varney, assistant attorney general for the Antitrust Division of the United States Department of Justice, having become Google’s most pointed critic.

She should be, given the Silicon Valley-born Yahoogle idea was an appalling reach by Google, as I wrote last April:

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector.

Anti-competitiveness would likely be Google’s first arrow in what will surely be an attempt to slow down, if not block, the deal.

And while advertisers are more disposed to have a stronger No. 2 player to counter Google’s growing power, the company might use the opportunity to shave the sharp edges of its ever-scarier reputation.

In a conference call early this morning about their deal, Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer tried to paint a picture of Google as a scary and dominating search giant.

But, as Google will surely offer up, if Microsoft and Yahoo combined is the underdog, it might not look like so much of a bully after all.

Please see this disclosure related to me and Google.

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