Microsoft-Yahoo deal a long time in the making

The road leading to the search deal between Microsoft and Yahoo, finally announced today, has been long.

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The possibility that Yahoo might be open to a deal involving its search ad business emerged while Microsoft was in the midst of trying to acquire the company last year.

After Microsoft's initial original 1 February offer of $31 per share, or about $44.6 billion, rumours began to circulate about discussions between Yahoo and Google on a search ad deal, although neither company initially confirmed the talks.

But in April last year, Yahoo acknowledged that it would begin a "limited test" of Google's AdSense for Search service to run Google ads in Yahoo's US search engine.

When Microsoft dropped its acquisition offer in early May, it cited as one of the main reasons for walking away the possibility that Yahoo could enter into a search ad deal with Google.

Having given up on acquiring all of Yahoo, Microsoft nonetheless attempted to acquire Yahoo's search business at least twice afterwards. In June it offered to pay $1 billion for the search assets and to invest another $8 billion in Yahoo at $35 per share.

The offer called for Microsoft to assume the search operations and R&D expense while returning data back to Yahoo for use in its other, non-search advertising business. The partnership included a three-year guarantee by Microsoft of better financial results than Yahoo's search ad system provided.

Such a combination, Microsoft argued, would offer strong competition to Google, whose stranglehold on the highly lucrative search ad market has been Microsoft's primary motivation in pursuing Yahoo.

Yahoo begged to differ and rejected Microsoft's offer on June 12, saying that selling its search ad business to Microsoft clashed with Yahoo's belief that it needs to own both a search and display ad business, because they are converging.

Later that same day, Yahoo and Google announced a non-exclusive deal for Yahoo to run ads provided by Google on Yahoo's search engine and on some of its Web sites. The deal gave Yahoo control over which search queries would trigger Google ads and over where those ads would appear.

Next page: A troubled history

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