[T]he deal didn't come with any upfront cash payment from Microsoft, though many analysts believe Yahoo could have received up to $1 billion in cash. As such, some argued that Bartz allowed Microsoft to gain the second-largest share of Internet search without receiving a return on the investment Yahoo has made over the years.
"In one fell swoop, she's allowed [Microsoft] really to potentially be a viable competitor in the space and has gotten very little in return for that important of an asset," said Darren Chervitz, director of research at Jacob Asset Management, a Yahoo shareholder.
Under the agreement, Microsoft will compensate Yahoo through a revenue-sharing agreement on traffic generated on Yahoo's network of Web sites. Microsoft will initially pay Yahoo 88% of revenue from Yahoo's sites for the first five years of the 10-year agreement.
"Yahoo shareholders could be a bit miffed because Yahoo spent a lot of money over the years developing search, and it appears a lot of that technology will go by the way," Cross Research analyst Richard Williams said.
Miffedness notwithstanding, only a willfully uninformed Yahoo shareholder could fail to see that Yahoo's position weakened considerably when Microsoft introduced its Bing search engine, which has been taking traffic from Yahoo. Indeed, let's give props to TechCrunch's Erick Schonfeld, who essentially nailed the unfolding scenario back on July 15:
All the fuss about Microsoft finally posing a credible challenge to Google with Bing, its new search engine, misses the real primary target of Microsoft's search efforts: Yahoo. Microsoft knows it can't unseat Google anytime soon, but it does have a fighting chance of taking down Yahoo to soften it for an acquisition or simply take over the No. 2 spot in search. Even that day is still a long ways away, with Yahoo commanding about twice as much search market share in the U.S. as Bing.
Really, you can argue that Bing's success -- modest and incremental as it has been -- was the handwriting on the wall in Yahoo's executive suites. I'm sure the possibility of falling into third place in search within two or three years was viewed as the death knell to Yahoo that it would be.
Forced hand or no, Quentin Hardy over at Forbes thinks Yahoo did the right thing:
[Bartz's] mantra has always been focus, and a Yahoo! that is divided between editorial and display-based revenues and search revenues is, in effect, two companies. That makes it slow to move and make decisions, something past management struggled with for years. ...
Besides, being in search left Yahoo! continually compared with Google, something Bartz knew could never work in her favor. ...With Microsoft in the picture, Bartz was looking at spending even more money for a business she saw as lucrative but not core to what Yahoo! does. Yahoo!, she has told her people, is fundamentally about e-mail, news, sports and entertainment. It can now focus on those areas and try to create a more efficient model for advertisers.
With a relatively swift move, she has defined, internally and to the world, what Yahoo! will be in the future. That's more than we've seen from the company in years.
As for Google, with 65 percent of the U.S. search market (Microsoft and Yahoo combine for 28 percent) it will have little to worry about for some time. Converting Google customers will take more than marketing dollars. The only real threat to Google would be if Microsoft-Yahoo moved the search ball forward by creating a measurably better (or more satisfying) search process than Google now offers. Bing hasn't done that.
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