Small print makes Microsoft deal look better for Yahoo
New regulatory filings show Yahoo got a much better deal from its search agreement with Microsoft than the firms had initially revealed. Microsoft will pay Yahoo $50 million a year for the first three years and will hire at least 400 current Yahoo staff.
From the way the two firms presented it upon announcing the deal, Microsoft appeared to have got the best of negotiations; at the time I wrote that despite cost savings, it “was not exactly Yahoo’s proudest day.” That was mainly because Yahoo was effectively giving up 12 percent of its own ad revenues for little but the hope that Microsoft could grow that income enough to outweigh the loss.
New financial filings reveal that, although the firms were strictly correct to say there’s no up-front payment, money will indeed be changing hands. Microsoft will be paying a total of $150 million to Yahoo “to partially cover transition and implementation costs not otherwise covered under the search agreement.”
The deal also includes a guarantee that Microsoft will hire at least 400 Yahoo staff permanently after the deal starts, with another 150 taken on as temporary consultants during the transition. Throw in a clause allowing Yahoo to pull out of the deal at any time if the firms’ combined market share falls below a certain level and things don’t look so bad for Yahoo. (Which isn’t to say turning down a $45 billion buyout last year looks any better in hindsight.)
The filings also show that Yahoo’s 88 percent share of search ad revenue from its own sites may rise slightly for the second half of the 10-year deal. The revenue share depends on whether Microsoft seeks to regain control of premium advertising on its sites (which will go to Yahoo when the deal starts) after five years:
- If Microsoft says it doesn’t want to take back control, the share rises to 90 percent.
- If Microsoft says it does want to take back, Yahoo can either hand it back and have the revenue share raise to 93 percent, or decide to keep control and have the revenue share fall to 83 percent.
That could create an interesting poker-like situation if Microsoft doesn’t want to take back control: it will have to guess whether or not Yahoo wants to hand it over, and whether it’s then worth pretending it wants control and gambling that Yahoo doesn’t call its bluff.
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