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FACTBOX: How Microsoft, Yahoo partnership will work

LOS ANGELES (Reuters) - Microsoft Corp and Yahoo Inc sealed a 10-year Web search deal to better compete against market leader Google Inc.

Here are the key terms of the deal, which stops short of combining their display advertising businesses.

FINANCIAL DETAILS

* Microsoft will guarantee the revenue per search for Yahoo’s owned and operated sites in each country for the first 18 months after initial implementation in that country.

* Yahoo expects the agreement to boost annual GAAP operating income by about $500 million within two years and help capital expenditure savings by about $200 million. Yahoo also expects the partnership to add about $275 million to annual operating cash flow.

* Microsoft will pay Yahoo through a revenue-sharing agreement on traffic generated on Yahoo’s network of both owned and operated and affiliate sites.

* Microsoft will pay traffic acquisition costs to Yahoo at an initial rate of 88 percent of search revenue generated on Yahoo’s owned and operated sites for the first five years.

ADVERTISING

* Yahoo will act as the global sales force for both companies’ premium search advertisers.

* Microsoft’s AdCenter platform will fulfill self-serve advertising for both companies.

* AdCenter’s automated auction process will set prices for all search ads.

* Each company will keep its own separate display advertising business and sales force.

SEARCH

* Under a 10-year license, Microsoft will be able to integrate Yahoo’s core search technologies into its current Web search platforms.

* Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo sites. Yahoo will continue to use its technology and data in other areas of its business, including display advertising technology.

* Yahoo will innovate and “own” the user experience on its own properties, including the user experience for search, even though it will be powered by Microsoft technology.

* The agreement restricts the use of search data shared between the companies. To protect consumer privacy, it will limit the data shared between the companies to the minimum necessary to operate and improve the combined search platform.

* Yahoo! will continue to syndicate its current search affiliate partnerships.

* The companies will continue to compete in other areas as the agreement does not cover each company’s web properties and products, email, instant messaging or display advertising.

Reporting by Laura Isensee, editing by Edwin Chan and Steve Orlofsky

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