Yahoo! (YHOO) and Microsoft Renew Search Ad Deal

Posted May 7, 2013

Yahoo! Inc. (NASDAQ:YHOO) and Microsoft Corporation (NASDAQ:MSFT) have renewed their search ad deal.  Microsoft agreed to extend “search revenue guarantees” that they have continually paid since the two companies made a deal in 2009.  The deal extension was spotted in Yahoo!’s quarterly financial filing with the SEC.

“On April 30, 2013, Microsoft extended the RPS Guarantee in the U.S. for an additional 12 months commencing April 1, 2013,” states the filing.  In 2009, Microsoft promised Yahoo! that they would earn a certain amount of revenue for each search that happens, known as “revenue per search” (RPS).  If this did not happen, Microsoft would make up the difference.  Ever since the deal was signed, Microsoft failed to deliver the expected RPS.

The deal was set to expire 18 months after the “paid search transition” from Yahoo! to Microsoft.  In Q4 2011, Microsoft extended the deal through March 31, 2013.  If Microsoft does not fill the RPS gaps by April 1, 2014, then Yahoo! can go to another company like Google.  However, a search ad partnership between Google and Yahoo! would be closely watched by regulation agencies.

Yahoo! CEO and President Marissa Mayer was previously a long-time executive and spokesperson for Google.

The search deal was triggered when Microsoft made an unsolicited bid to acquire Yahoo! for $44.6 billion in February 2008.  Yahoo! rejected the offer from Microsoft and claimed that it undervalued the company.  Three years after that deal was rejected, Yahoo!’s market cap dropped to $22.24 billion.  Mayer was brought in to help improve the company’s products.