Yahoo gains search flexibility in revised Microsoft deal

Yahoo (YHOO) is getting more flexibility to run its search business under a modified deal with Microsoft (MSFT) announced on Thursday.

Under the new agreement, Yahoo will gain the ability to work with other partners in search and also take greater control of ad sales on its own web sites. Shares of Microsoft and Yahoo, the parent of Yahoo Finance, were nearly unchanged after the deal was announced.   

Back in 2009, Yahoo signed a 10-year deal to let Microsoft's Bing provide search results for its customers on desktop PCs in return for giving Microsoft 12% of the advertising revenue generated. Even though the deal runs for five more years, Yahoo CEO Marissa Mayer has chafed under the terms, as Microsoft's search technology has lagged behind Google's (GOOGL) in its ability to monetize search advertising.

With Yahoo's display advertising revenue plummeting, Mayer has been looking to increase revenue from search ads, particularly on mobile phones, which aren't covered by the Microsoft deal. Last year, she beat out Google, her former employer, to be the default search engine in the Netscape browser. Mayer has also said she plans to try to win the default position on Apple's (AAPL) iPhone away from Google, as well.

“This renewed agreement opens up significant opportunities in our partnership that I’m very excited to explore," Mayer said in a statement.

Microsoft CEO Satya Nadella sounded a little less excited. Microsoft will "look forward to building on what we’ve already accomplished together," Nadella said, touting the Yahoo partnership as "one example of the diverse partnerships we’ll continue to cultivate."

Analysts said the new flexibility could help Yahoo in several positive, though modest, ways.

Yahoo could now partner with other search providers, some of whom might be able to bring in more dollars per ad than Microsoft's Bing, Nomura analyst Anthony DiClemente said in a research note. "The news is a modest positive for Yahoo’s search business, given new flexibility to pursue additional monetization partners," he wrote.

The deal also changed the way ad sales responsibilities will be split. Under the new deal, Yahoo gained the right to sell all kinds of ads for searches on its sites, giving Microsoft the same right on its sites. Previously, Yahoo sold ads to major advertisers, so-called premium clients, on all the sites combined, while Microsoft handled automated sales to smaller advertisers.

"This will allow Yahoo better ability to serve all advertisers on its search platform, whereas previously, Yahoo was exclusive for premium advertisers on search only," DiClemente noted.

Microsoft and Yahoo have made only slight progress over the past year against Google in search market share on the desktop, according to data from Comscore. Google captured 64.4% of the market in March, compared to 20.1% for Microsoft and 12.7% for Yahoo. A year earlier, Google had 67.5%, Microsoft 18.6% and Yahoo 10.1%.