Yahoo! Deal With Microsoft Better Than Assumed

Yahoo! (YHOO) filed an 8K with the SEC with details of its search engine agreement with Microsoft (MSFT). Several of the provisions of the contract are better than investors may have expected.

Yahoo!’s share of the revenue under the agreement can move to 93% in the last five years of the deal, up from 88% in the first five years.

Yahoo! will get $50 million a year for the first three years of the contract. The 8K says “Yahoo! may use these payments to partially cover transition and implementation costs not otherwise covered under the Search Agreement.”

Microsoft also has to maintain certain revenue per search numbers which cannot fall below a specified percentage of Google’s (GOOG) numbers or “if the combined Yahoo! and Microsoft query market share in the United States falls below a specified level,” Yahoo! can terminate the contract.

In other words, Yahoo! cut a better deal with Microsoft than the initial public relations statements said.

Douglas A. McIntyre