News

Microsoft To Hire 400 Yahoos in Search Deal

• By Kurt Mackie
• August 05, 2009

Microsoft plans to hire at least 400 Yahoo employees as part of its search-advertising deal with Yahoo, which was announced last week.

In addition, 150 additional Yahoo employees will be hired to smooth over the transition. Microsoft will absorb those employees over an unspecified time, but no longer than about two years and three months after the deal begins. Those details were explained in Yahoo's Form 8-K Securities and Exchange Commission filing.

The hiring details weren't part of Microsoft and Yahoo's initial announcement of the deal.

If the deal goes through, Microsoft will start hiring Yahoo employees on the "commencement date." That date is unspecified in the Form 8-K since Microsoft and Yahoo must wait for regulatory and U.S. judicial approvals. However, the two companies expect the deal to be approved by "early 2010."

Microsoft's CEO Steve Ballmer had hinted at the employee transition last week, saying that "over time, some Yahoo engineers may move to Microsoft."

Yahoo's SEC filing also clarified some of the financial terms, including a five-year gap that wasn't explained in the companies' initial announcement. The proposed 10-year search advertising deal proposes that Yahoo will use Microsoft's Bing search engine technology on its Web sites while Yahoo will serve as the search premium advertising seller worldwide for both itself and Microsoft.

The deal involves no upfront cash, but has elaborate rules for sharing search-ad revenues.

"Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!'s O&O [owned and operated] sites during the first 5 years of the agreement," the companies announced last week. Yahoo's SEC filing filled in the details about the subsequent five years.

During the fifth year, Microsoft can cancel Yahoo's sales role, but then its rate for sharing revenue will go up -- from 88 percent to 93 percent. Yahoo can insist on its sales exclusivity role, in which case, Microsoft's revenue share rate reverts to 83 percent. If Microsoft doesn't take any action to change the sales agreement, the revenue sharing rate will still increase, but to 90 percent.

Microsoft is also going to pay Yahoo $50 million annually for the first three years of the deal. Those payments are described as "transition and implementation costs" in Yahoo's SEC filing.

The deal can be ended if the U.S. revenue per search, combining Microsoft's and Yahoo's search queries, falls below a percentage of Google's revenue per search, or if it's below a percentage target that wasn't specified.