Report: Yahoo wants out of Microsoft search agreement

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Yahoo is exploring options to wriggle out of its 10-year search pact with Microsoft (NASDAQ:MSFT) but has so far failed to identify an escape route, The Wall Street Journal reports.

Per terms of the agreement brokered in 2009, Yahoo controls the look and feel of its search tools, but Microsoft's Bing search engine provides the actual query results. Sources familiar with the matter told the Journal that Yahoo CEO Marissa Mayer has sought to terminate the alliance since taking over the company in mid-2012 because Yahoo's revenue per search is lower under the Microsoft deal than it was when the company operated its own search technology and advertising system. Insiders add that Mayer has a verbal agreement in place to implement an alternative search/ad partnership with her former employer Google (NASDAQ:GOOG), but her efforts to divorce Microsoft have met with resistance from Microsoft CEO Steve Ballmer.

Assuming the situation does not change, the terms of the alliance state either Yahoo or Microsoft can end the partnership in 2015. According to a regulatory filing Tuesday, Microsoft has agreed to compensate for the poor performance of its search ads by paying revenue guarantees to Yahoo through March 2014, extending an arrangement between the firms that expired last month.

The Journal notes Yahoo declined to comment on its private discussions, but it said in a statement that "Microsoft is an important partner, and we continue to work together to grow search share and improve monetization." A Microsoft spokesperson said the company is "working closely with Yahoo to further strengthen our partnership and deliver real choice and value to advertisers and consumers." Google didn't respond to a request for comment.

Last month, The Wall Street Journal reported Yahoo is in discussions with Apple (NASDAQ:AAPL) to integrate Yahoo Web services more deeply into the iPhone and iPad user experience. Yahoo weather and finance apps are already preloaded on iOS devices, and other Yahoo data helps power Apple's Siri voice assistant: Sources indicated Apple and Yahoo are now exploring a deal that would encompass more pre-installed Yahoo content and/or an expanded Siri partnership. In addition, Yahoo is mulling options to provide search data to Apple, in turn reducing Apple's reliance on Google information and services.

The possibility of a Yahoo/Apple search pact is considered remote, however. Yahoo's Microsoft alliance poses obstacles, and Google is already under contract as the default Web search provider on iOS devices. While Apple no longer pre-installs services like Google Maps and YouTube, insiders say Apple executives including Senior Vice President of Internet Software and Services Eddy Cue believe Google delivers a superior search experience compared to competing services, and they are unwilling to sacrifice the quality of iOS search results.

Mayer has called mobile Yahoo's "top priority," and she is looking to the platform to recharge its business. "I think the opportunity for growth (in mobile) is very fundamentally one of the things that drew me to Yahoo," she said earlier this year. "When you think about mobile... When you see triple-digit growth in some areas, there's a big opportunity for growth. Yahoo has the content that people want on their phone."

For more:
- read this Wall Street Journal article
- read this Bloomberg article

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