Microsoft and Yahoo Announce 10-Year Search Deal

And so the deal is finally done: Microsoft and Yahoo early this morning announced a 10-year deal that provides a united front against search giant Google. As we wrote last night, the deal essentially turns over Yahoo’s search service to Microsoft and its newly launched Bing search engine, while Yahoo will be responsible for all search ad sales, using Microsoft’s ad sales technology.

Although Yahoo estimates the deal will mean $500 million a year in operating income, $200 million in savings on capital spending, and $275 million in extra operating cash flow, investors don’t appear too happy. The stock is down nearly 10% in early trading. They may be reacting to the lack of a large upfront payment that was rumored in earlier talks, as well as the uncertainty about how well the complex deal will be executed.