Microsoft deal will pay Yahoo more after 5 years

SAN FRANCISCO, USA: Yahoo Inc will get slightly more revenue from Microsoft Corp during the second half of the companies' recently announced 10-year Internet search partnership.

The share of revenue that Microsoft pays to run search ads on Yahoo's network of sites will increase from 88 per cent to 90 per cent in the second five years of the partnership, according to regulatory filings by Yahoo on Tuesday.

At least 400 Yahoo employees will join Microsoft as part of the Internet search partnership, and the two companies will select an additional 150 Yahoo employees to help with the transition of powering Yahoo's search and ad search with Microsoft technology.

Yahoo and Microsoft announced the search partnership last week, ending a multi-year courtship between the two companies that at one point entailed Microsoft paying $47.5 billion, $33 a share, to acquire Yahoo outright.

Yahoo shares have declined roughly 16 per cent since the deal was announced, on investor disappointment that Microsoft is not paying Yahoo an upfront payment.

Shares of Yahoo were unchanged at $14.51 in extended trading on Tuesday.

Under the terms of the deal, Microsoft will provide the technology to power the search results and the search advertising capabilities on Yahoo's sites. Both companies will maintain separate sales forces for selling display ads on their respective sites, but Yahoo's sales team will handle sales of so-called "premium" search ads that are sold to large, and highly-coveted brand advertisers.

If Microsoft opts to reclaim control of premium ad sales on its own sites after five years, it will have to pay Yahoo a 93 per cent share of the search revenue on Yahoo sites. Should Yahoo in turn want to maintain its premium ad sales exclusivity in the face of Microsoft's intentions, then Yahoo's share of search revenue will decline to 83 per cent.

If neither company seeks to alter the terms after five years, effectively allowing Yahoo to continue providing premium ads for both sites, Yahoo's will be entitled to a 90 per cent share of the revenue.