Microsoft, Yahoo agree on long-sought search deal

SAN FRANCISCO -- Microsoft Corp. has finally roped Yahoo Inc. into an Internet search partnership, capping a convoluted cat-and-mouse game that dragged on for years.

The 10-year deal announced Wednesday gives Microsoft access to the Internet's second-largest search engine audience, adding a potentially potent weapon to the software maker's Internet arsenal as it girds for an all-out assault against online search and advertising leader Google Inc.

The extended reach will allow Microsoft to introduce its recently upgraded search engine, called Bing, to more people. The Redmond, Wash.-based software maker believes Bing is just as good, if not better, than Google's search engine. Taking over the search responsibilities on Yahoo's highly trafficked site gives Microsoft a better chance to convert Web surfers who had been using Google by force of habit.

In return for turning over the keys to its search engine, Yahoo will get to keep 88 percent of the revenue from all search ad sales on its site for the first five years of the deal, and have the right to sell ads on some Microsoft sites.

Yahoo estimated the deal will boost its annual operating profit by $500 million and save the Sunnyvale, Calif.-based company about $275 million on capital expenditures a year because it won't have to invest in its own search technology.

In premarket activity, shares of Yahoo slid $1.19, or 6.9 percent, to $16.03. Microsoft shares advanced 19 cents to $23.66.

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Jessica Mintz contributed to this report from Seattle.