Yahoo, Microsoft Can Terminate Search Deal Anytime On Or After Oct. 1 -- Update

By Douglas MacMillan 

Yahoo and Microsoft's 10-year search pact could end well before the decade is out.

The two companies have amended the terms of their partnership to let either party terminate the deal at any point in time on or after Oct. 1, according to a filing Yahoo made on Monday.

Having an opt-out clause gives Yahoo more freedom to control its own destiny in the business of Web search. In a break from her predecessors, Yahoo chief Marissa Mayer has invested in building new search technologies and negotiated to control up to 49% of searches done on desktops under the new terms of the Microsoft pact.

Under the original deal, which began in February 2010, Yahoo could only terminate the deal if its revenue from each search failed to meet certain financial-performance benchmarks, and could only ask to do so during the 10-year pact's hallway point, which just passed.

Yahoo or Microsoft can now walk away from the deal before it expires in 2020 "by delivering a written notice of termination," according to the filing. After that, the search agreement will remain in effect for a four-month transition period before ending.

Though their partnership has been rocky, it is unlikely either side would walk away anytime soon. Yahoo lacks the technology infrastructure and engineering staff necessary to deliver comprehensive Web search results. And without Yahoo, Microsoft would find it difficult to generate enough traffic to compete with Google for search advertising dollars.

The amended search agreement also slightly changed the terms of the partners' revenue sharing. Yahoo will now get 93% of revenue from search ads served on its own pages, before paying out Web publishing partners. In the first five years of the deal, Yahoo received 88% of revenue from searches after paying partners. That percentage increased to 90% in February.

The companies announced some of the terms of the revised pact last week, emphasizing Yahoo's new abilities to control how search results are presented on both desktop computers and mobile devices and Microsoft's new responsibilities to sell ads on its Bing search site. They didn't discuss changes to the termination clause.

In its press release, Yahoo said the "existing underlying economic structure" of the deal "remains unchanged."

Write to Douglas MacMillan at [e-mail]

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