After 18 months, Microsoft and Yahoo finally struck a deal on search advertising, but Wall Street has already given its thumbs-down verdict to the beleaguered search pioneer.
Investors pushed shares 11 percent lower after the announcement.
The deal, aimed at dethroning Google, will bond both companies for a 10-year period with Yahoo using Microsoft’s Bing search engine on its Web sites and selling ads, a la Google, next to its Internet results.
“Right now, there's one company that really dominates the worldwide market for search and online advertising. The partnership we are announcing today will help to create a stronger No. 2 and increase competition in the search area,” Microsoft CEO Steve Ballmer said in a statement.
The agreement gives the world’s largest software maker more users for its search engine, which has about an eighth of Google’s market share in the U.S., according to research firm ComScore.
But analysts and Wall Street were disappointed by the terms of the deal. That's because a big upfront payment ranging $1 billion to $2 billion had been expected from Microsoft.
“Beyond that, Yahoo was expected to get a much higher revenue share, in the range of 100 to 110 percent for the initial few years of the deal; 88 percent is considerably lower than that,” Todd Greenwald, an analyst at Signal Hill, wrote in a report.
Analysts even expect the deal to benefit Google as it will take a long time for Yahoo and Microsoft to implement the specifics of their long-term accord, adding a lot of operational hurdles to both companies.
“Despite the partnering of its two major rivals, this search deal could actually benefit Google as it will create a large distraction for Yahoo, Microsoft, and their advertisers, as they work to appease regulators, and then spend up to 2 years trying to implement changes,” Mr. Greenwald wrote.
Sunnyvale, California, Yahoo this year gained 41 percent in Nasdaq trading before it plummeted $2.03, or 11.8 percent, to $15.19 after the announcement, its biggest decline since November. Microsoft rose $0.09 to $23.56, while Google lost $4.48 to $435.37.