Sunnyvale, California—Yahoo search is in a 10 year agreement with Microsoft to power its user query returns but now, the tech company wants out of the deal, according to several news reports. The insight into the desired switch comes as the internet property makes big changes, including its new Stream Ads and its $30 million purchase of the Summly app.
Other changes are on the horizon outside the Yahoo search engine, which together with Bing, has been able to surpass Google in five key search areas. The company apparently feels as though it can greatly improve its revenues by making the competition a partner.
Yahoo Search Engine’s Bing Deal
In 2009, the company struck a deal with Microsoft to power the Yahoo search API, or automatic programming interface as at the time, it was losing traffic to the other search portals. With the assistance of Microsoft, the company sought to improve the Yahoo user search experience and that has materialized, at least to a degree.
News reports by Bloomberg and the Wall Street Journal shed light on why the company wants to turn the Yahoo search bar over to Google, “Microsoft gets 12% of the revenue Yahoo generates from search ads that appear next to search results on its websites. Because the combined search-ad system was expected to face challenges initially, Microsoft guaranteed a certain level of revenue for every search query done on Yahoo’s sites. The regulatory filing says the revenue guarantee expired on March 31, but Microsoft on April 30 agreed to extend it for an additional 12 months.”
The Yahoo Search Engine Trap
According to the structure of the deal, the first chance Microsoft will get to exit the agreement isn’t until February 23, 2015, a halfway point in the contract. But at that time, Microsoft could opt to allow the current deal to go forward, which would increase its revenue share from 12 percent to 17 percent.
Under the terms of the agreement, Yahoo search will continue to be run through Bing, unless its market share falls 40 percent that of Google’s revenue per search, Microsoft sells off Bing, or the world’s largest software company closes its doors–none of which are likely to occur.
Yahoo search revenue increased on its year-over-year performance, coming in at $409 million, up 6 percent in Q1 of this year.