Impact of the agreement between Microsoft and Yahoo

Impact of the agreement between Microsoft and Yahoo

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According to an article published in The Guardian, Steve Ballmer, CEO of Microsoft, believes that Google will try to block its agreement with Yahoo. Workers have already been warned that there will be layoffs when both companies integrate operations.

With their 10-year global agreement, Microsoft and Yahoo intend to close the gap with Google, the market leader in search advertising.

Under this agreement, Microsoft's Bing search service will be integrated into the websites of both companies, while Yahoo will manage the global sale of search ads.

Ballmer, who failed in his bid to buy Yahoo's search business for $ 1 billion last year, said he expects an "aggressive" defense from Google when the deal is reviewed by regulators around the world.

"We suspect that we will have to face opposition from the competition [Google]," he said at a news conference with Yahoo CEO Carol Bartz. “Our union will provide more competition, not less. [However] we expect our competitor to be aggressive. "

Microsoft and Yahoo intend to present the more than 100-page agreement document to antitrust authorities in the US and Brussels, as well as other markets, next week. The companies expect to close the deal early next week.

Ballmer noted that the deal could be more easily cleared by regulators in the European Union, given that Google has a 92% market share in search advertising in Europe, compared to 70%. In the USA. In this way, the advertising market share in Microsoft and Yahoo searches together will be much lower in Europe than the 25-30% they will have in the US, he said.

Bartz noted that the deal is attractive to Yahoo because it includes a payment of “traffic acquisition costs” (Tac) equivalent to 88% of the revenue generated from searches on sites owned or managed by Yahoo during the first few months. five years of the agreement, although without a direct payment in cash.

"A large cash payment does not help from a performance point of view," he added. "What we wanted was an important Tac index in order to be able to obtain the necessary income to maintain our expense line and invest in the business."

Ballmer admitted that there is "no question" that the deal is at a higher Tac rate than last summer's negotiations, in which Microsoft tried to buy Yahoo's search business, and stated that establishing joint management between both companies over the next several years will cost Microsoft "a couple hundred million."

In return, one of the advantages, he added, is that this partnership will allow Microsoft and Yahoo to develop a superior search algorithm to cope with Google.
Bartz noted that Bing will be integrated into Yahoo three to six months after the deal closes; however, the global integration with the resulting financial benefits is not expected until two years later, he added. Some Yahoo search employees will move to Microsoft, and others will move to the company's display ads division, though there will also be cuts, according to Bartz.

"Unfortunately, there will be some layoffs at Yahoo," he said, adding that the process by which these layoffs will take place will unfold over the next two and a half years.

Bartz stated that once the company is established and operational, it will generate an income of 500 million dollars a year. By focusing Microsoft on the development of search technology, Yahoo estimates that it will save $ 200 million a year in capital investment.

“This agreement will create significant alternative competition in searches. A combination of Microsoft and Yahoo… puts the choice back in the hands of consumers, advertisers and publishers, increasingly eager for the influence of a single player, ”added Bartz.

A Google spokesperson noted: “Traditionally there has been a lot of competition online and our experience is that competition often brings great things to users. We are interested in knowing more about the agreement ”.

Source: The Guardian Media

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