As expected, Microsoft and Yahoo! have announced a blockbuster under the terms of which Microsoft's Bing service will serve search results for both companies while Yahoo!'s sales force will serve advertisers for both companies. Microsoft says that the alliance combines complementary strengths from both companies, helping users and advertisers alike.

"Through this agreement, we will create more innovation in search, better value for advertisers, and real consumer choice in a market currently dominated by a single company," said Microsoft CEO Steve Ballmer. "Success in search requires both innovation and scale. With our new Bing search platform, we've created breakthrough innovation and features. This agreement gives us the scale and resources to create the future of search."

"This agreement establishes the foundation for a new era of Internet innovation and development," said Yahoo! CEO Carol Bartz. "Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides. Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers. Finally, this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities, and mobile experiences."

The actual details of the agreement are somewhat interesting. Microsoft is taking over all technical aspects of search for both companies for the next ten years and gains exclusive access to Yahoo!'s core search technologies and the rights to integrate them into its own search products. This gives Microsoft access to the world's second-largest Internet search audience, and allows it to bolster Bing's strengths with Yahoo! search technology.

Microsoft is not paying Yahoo! any kind of upfront fee, but Yahoo! will retain 88 percent of revenues generated from ads that run on its own sites for the first five years of the agreement. Yahoo! believes the deal will generate $500 million in additional operating profit and save the company an additional $275 million in capital expenditures each year. It will use these savings to bolster its web portal and entertainment efforts. The companies also note that the deal does not affect each company's web properties and products, email, instant messaging, display advertising, or any other aspect of the companies' businesses. "In those areas, the companies will continue to compete vigorously," Microsoft notes.

In a nod toward the inevitable antitrust investigation of the deal, the two companies have also agreed not to begin combining their technologies until the relevant regulators can review the partnership. Microsoft says it expects to close the deal early in 2010 and then fully integrate search technologies from the two companies within a few years.

The companies have created a website called Choice, Value, Innovation that provides more information about the partnership.

History of Deal: