Microsoft and Yahoo! Merge Search Engines

The world's second and third biggest search sites combine to compete with Google

In a 10-year plan revealed today, Microsoft and Yahoo have formed an online search engine and advertising partnership, in an attempt to rival Google's dominance of the market.

As the agreement stands, Yahoo! will use Microsoft's newly developed Bing search engine on their websites, and in exchange Yahoo! will be Microsoft's sole worldwide sales division for their advertisers.

Early estimations from Yahoo! predict that the deal will boost operating profits by $500m thanks to the 88 per cent of the revenue from all the ad sales from their site they will receive for the first five years. They will also save an estimated $275m due to not having to research their own search engine technology.

On Microsoft's end of the deal, they are hoping to close down on Google's 67 per cent of global traffic with the help of Yahoo!'s 8 per cent (which ranks at second largest). It should be noted however that in the US, Yahoo!'s share is a substantially larger 20 per cent, whereas Google's stands at 65 per cent. Microsoft felt a merger necessary as, after spending billions of dollars on their search engine technology they still only held a 3 per cent worldwide share, and an 8 per cent share in America.

Carl Icahn, 5 per cent shareholder and boardroom director of Yahoo! urged a search engine/advertising collaboration earlier this month. Other shareholders of both Microsoft and Yahoo! are sure to be delighted at the deal too, as they have been encouraging the idea for some time now, and when Yahoo! rejected a takeover from Microsoft worth $47.5m in 2008, progress seemed to have stopped dead.