29/07/2009 12:41:00

Microsoft, Yahoo! Change Search Landscape

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Yahoo! and Microsoft announced an agreement that will improve the Web

search experience for users and advertisers, and deliver sustained

innovation to the industry. In simple terms, Microsoft will now power

Yahoo! search while Yahoo! will become the exclusive worldwide

relationship sales force for both companies’ premium search advertisers.

For Web users and advertisers, this deal will accelerate the pace and

breadth of innovation by combining both companies’ complementary

strengths and search platforms into a market competitor with the scale

to fuel sustained development in search and search advertising. Users

will find what they care about faster and with more personal relevance.

Microsoft’s competitive search platforms will lead to more value for

advertisers, better results for Web publishers, and increased innovation

and efficiency across the Internet.

Under this agreement, Yahoo! will focus on its core business of

providing consumers with great experiences with the world’s favorite

online destinations and Web products.

“This agreement comes with boatloads of value for Yahoo!, our users, and

the industry, and I believe it establishes the foundation for a new era

of Internet innovation and development,” said Yahoo! Chief Executive

Officer Carol Bartz. “Users will continue to experience search as a

vital part of their Yahoo! experiences and will enjoy increased

innovation thanks to the scale and resources this deal provides.

Advertisers will also benefit from scale and enjoy greater ease of use

and efficiencies working with a single platform and sales team for

premium advertisers. Finally, this deal will help us increase our

investments in priority areas in winning audience properties, display

advertising capabilities and mobile experiences.”

Providing a viable alternative to advertisers, this deal will combine

Yahoo! and Microsoft search marketplaces so that advertisers no longer

have to rely on one company that dominates more than 70 percent of all

search. With the addition of Yahoo!’s search volume, Microsoft will

achieve the size and scale required to unleash competition and

innovation in the market, for consumers as well as advertisers.

Microsoft Chief Executive Officer Steve Ballmer said the agreement will

provide Microsoft’s search engine, Bing, the scale necessary to more

effectively compete, attracting more users and advertisers, which in

turn will lead to more relevant ads and search results.

“Through this agreement with Yahoo!, we will create more innovation in

search, better value for advertisers and real consumer choice in a

market currently dominated by a single company,” said Ballmer. “Success

in search requires both innovation and scale. With our new Bing search

platform, we’ve created breakthrough innovation and features. This

agreement with Yahoo! will provide the scale we need to deliver even

more rapid advances in relevancy and usefulness. Microsoft and Yahoo!

know there’s so much more that search could be. This agreement gives us

the scale and resources to create the future of search.”

“This deal fits the long-term strategic direction of Yahoo! to remain

the world’s leading online media company and Carol Bartz has the full

and unanimous support of the Yahoo! Board behind this deal,” said Roy

Bostock, chairman, Yahoo! Inc. “This is a significant opportunity for

us. Microsoft is an industry innovator in search and it is a great

opportunity for us to focus our investments in other areas critical to

our future.”

The key terms of the agreement are as follows:

  • The term of the agreement is 10 years;

  • Microsoft will acquire an exclusive 10 year license to Yahoo!’s core

    search technologies, and Microsoft will have the ability to integrate

    Yahoo! search technologies into its existing 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 such as enhancing

    display advertising technology;

  • Yahoo! will become the exclusive worldwide relationship sales force

    for both companies’ premium search advertisers. Self-serve advertising

    for both companies will be fulfilled by Microsoft’s AdCenter platform,

    and prices for all search ads will continue to be set by AdCenter’s

    automated auction process;

  • Each company will maintain its own separate display advertising

    business and sales force;

  • Yahoo! will innovate and “own” the user experience on Yahoo!

    properties, including the user experience for search, even though it

    will be powered by Microsoft technology;

  • Microsoft will compensate Yahoo! through a revenue sharing agreement

    on traffic generated on Yahoo!’s network of both owned and operated

    (O&O) and affiliate sites;

    • Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an

      initial rate of 88 percent of search revenue generated on Yahoo!’s

      O&O sites during the first five years of the agreement; and

    • Yahoo! will continue to syndicate its existing search affiliate

      partnerships.

  • Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each

    country for the first 18 months following initial implementation in

    that country;

  • At full implementation (expected to occur within 24 months following

    regulatory approval), Yahoo! estimates, based on current levels of

    revenue and current operating expenses, that this agreement will

    provide a benefit to annual GAAP operating income of approximately

    $500 million and capital expenditure savings of approximately $200

    million. Yahoo! also estimates that this agreement will provide a

    benefit to annual operating cash flow of approximately $275 million;

    and

  • The agreement protects consumer privacy by limiting the data shared

    between the companies to the minimum necessary to operate and improve

    the combined search platform, and restricts the use of search data

    shared between the companies. The agreement maintains the

    industry-leading privacy practices that each company follows today.

The agreement does not cover each

company’s Web properties and products, email, instant messaging, display

advertising, or any other aspect of the companies’ businesses. In those

areas, the companies will continue to compete vigorously.

The transaction will be subject to regulatory review. The agreement

entered into today anticipates that the parties will enter into more

detailed definitive agreements prior to closing. Microsoft and Yahoo!

expect the agreement to be closely reviewed by the industry and

government regulators, and welcome questions. The companies are hopeful

that closing can occur in early 2010.

The companies have established a website at http://www.choicevalueinnovation.com

to provide consumers, advertisers and publishers with additional

information about the benefits of the agreement.

Conference Call – 5:30 a.m. PDT, Wednesday, July 29

Yahoo! and Microsoft will host a conference call with Yahoo! CEO Carol

Bartz and Microsoft CEO Steve Ballmer to discuss the agreement at 5:30

a.m. Pacific/8:30 a.m. Eastern Time today. To listen to the call, please

dial 1-866-515-2908 in the U.S. and Canada; +1-617-399-5122

international, reservation number: 47968026. A live webcast of the call

can be accessed through Yahoo!’s Investor Relations website at http://yhoo.client.shareholder.com/results.cfm.

In addition, an archive of the webcast will be available through the

same link. An audio replay of the call will be available for two weeks

following the conference call by calling 1-888-286-8010 in the U.S. and

Canada; +1-617-801-6888 international, reservation number: 91217610.

Non-GAAP Financial Measures

This release refers to operating cash flow (operating income before

depreciation, amortization of intangible assets, and stock-based

compensation expense, or OCF), which is a non-GAAP financial measure.

The most comparable GAAP measure is income from operations. The

estimated annual OCF benefit of $275 million included in this press

release is the estimated annual benefit in income from operations of

$500 million less approximately $225 million of estimated annual savings

in depreciation, amortization and stock-based compensation expense.

About Yahoo!

Yahoo! Inc. (Nasdaq “YHOO”) is a leading global consumer brand and

one of the most trafficked Internet destinations worldwide. Yahoo! is

where millions of people go every day to see what is happening with the

people and things that matter to them most. Yahoo! helps marketers reach

that audience with its unique and compelling advertiser proposition.

Yahoo! is headquartered in Sunnyvale, California. For more information,

visit

http://pressroom.yahoo.com

or the company’s blog, Yodel Anecdotal at

http://yodel.yahoo.com

.

“Owned and Operated sites” refers to Yahoo!’s owned and operated

online properties and services.

“Affiliate sites” refers to Yahoo!’s distribution network of

third-party entities who have integrated Yahoo!’s advertising offerings

into their websites or their other offerings.

This press release and its attachments contain forward-looking

statements that involve risks and uncertainties concerning Yahoo!’s

expected financial performance (including without limitation the

quotations from management in this press release), as well as Yahoo!’s

strategic and operational plans. Actual results may differ materially

from the results predicted and reported results should not be considered

as an indication of future performance. The potential risks and

uncertainties include, among others, the expected financial and other

benefits of the agreement with Microsoft may not be realized, including

as a result of actions taken by United States or foreign regulatory

authorities and the response or acceptance of the agreement by

publishers, advertisers, users, and employees and Yahoo!’s strategic and

business partners; the impact of management and organizational changes;

the implementation and results of Yahoo!’s ongoing strategic and cost

initiatives; Yahoo!’s ability to compete with new or existing

competitors; reduction in spending by, or loss of, marketing services

customers; the demand by customers for Yahoo!’s premium services;

acceptance by users of new products and services; risks related to joint

ventures and the integration of acquisitions; risks related to Yahoo!’s

international operations; failure to manage growth and diversification;

adverse results in litigation, including intellectual property

infringement claims; Yahoo!’s ability to protect its intellectual

property and the value of its brands; dependence on key personnel;

dependence on third parties for technology, services, content, and

distribution; and general economic conditions and changes in economic

conditions;

All information set forth in this press release and

its attachments is as of July 29, 2009. Yahoo! does not intend, and

undertakes no duty, to update this information to reflect future events

or circumstances. More information about potential factors that could

affect the Company's business and financial results is included under

the captions "Risk Factors" and "Management's Discussion and Analysis of

Financial Condition and Results of Operations" in the Company's Annual

Report on Form 10-K for the year ended December 31, 2008, and Quarterly

Report on Form 10-Q for the quarter ended March 31, 2009, which are on

file with the SEC and available on the SEC's website at

www.sec.gov

.

Additional information will also be set forth in those sections in

Yahoo!’s Quarterly Report on Form 10-Q for the quarter ended June 30,

2009, which will be filed with the SEC in the third quarter of 2009.

This press release and its attachments also contain financial

projections that are necessarily based upon a variety of estimates and

assumptions which may not be realized and are inherently subject, in

addition to the risks identified in the forward-looking statement

disclaimer, to business, economic, competitive, industry, regulatory,

market and financial uncertainties, many of which are beyond Yahoo!’s

control.

There can be no assurance that the assumptions made in

preparing the projected financial impact will prove accurate.

Accordingly,

actual results may differ materially from the projected financial impact.

In addition, all projections exclude anticipated reinvestment by

Yahoo! in its non-search business.

Yahoo! and the Yahoo! logos are trademarks and/or registered trademarks

of Yahoo! Inc. All other names are trademarks and/or registered

trademarks of their respective owners.

About Microsoft

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in

software, services and solutions that help people and businesses realize

their full potential.

Note to editors: If you are interested in viewing additional

information on Microsoft, please visit the Microsoft Web page at

http://www.microsoft.com/presspass

on Microsoft’s corporate information pages. Web links, telephone numbers

and titles were correct at time of publication, but may since have

changed. For additional assistance, journalists and analysts may contact

Microsoft’s Rapid Response Team or other appropriate contacts listed at

http://www.microsoft.com/presspass/contactpr.mspx

.

Yahoo! Inc.

Supplemental Information Regarding Projected Incremental Impact

of Microsoft Search Agreement

(in thousands)

 

Gross profit1

 

($150,000

)

 

Operating expenses2

 

$650,000

 

Income from operations

 

$500,000

 

Depreciation, amortization and stock based compensation expense

($225,000

)

 

Operating income before depreciation, amortization, and

stock-based compensation expense (or operating cash flow)

 

$275,000

 

1

Gross profit impact consists of increased revenue net

of Microsoft’s share of Yahoo!’s search revenue. The increased revenue

is attributable to the scale resulting from the combination of the

Yahoo! and Microsoft search marketplaces.

2

Operating expenses impact represents savings from

reductions in spending on Yahoo!’s search technology.

Note: All estimates represent the projected annual financial impact of

the agreement following its full implementation, which is expected to

occur within 24 months of regulatory approval, and are based on Yahoo!’s

current levels of revenues and operating expenses. In addition, all

projections exclude anticipated reinvestment by Yahoo! in its non-search

business. The projections are necessarily based upon a variety of

estimates and assumptions which may not be realized and are inherently

subject, in addition to the risks identified in the forward-looking

statement disclaimer, to business, economic, competitive, industry,

regulatory, market and financial uncertainties, many of which are beyond

Yahoo!’s control. There can be no assurance that the assumptions made in

preparing the projected financial impact will prove accurate.

Accordingly, actual results may differ materially from the projected

financial impact.

Microsoft Media Relations Contact:

Waggener Edstrom Worldwide

Rapid

Response Team, +1 (503) 443-7070

or

Microsoft Investor

Relations Contact:

Bill Koefoed, +1 (425) 706-3703

general

manager, Investor Relations

or

Yahoo! Media Relations

Contact:

Yahoo! Press and Industry Analyst hotline, +1 (408)

349-4040

or

Yahoo! Investor Relations Contact:

Cathy

LaRocca, +1 (408) 349-5188

senior manager, Investor Relations

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