The Marriage: Microsoft and Yahoo Make It Official

On Thursday, the search deal between Microsoft and Yahoo was approved by the regulators, and the approval was the end of a courtship that had dragged on for three years. The two companies had almost merged, had almost married, had spent billions on lawyers and negotiations, and the deal that finally landed was not a merger at all. The deal was a partnership, and the partnership was the surrender of the search war. The approval is the February 2010 story, and the story is the lesson: sometimes the biggest victory is admitting that you cannot win alone.

The Marriage is the subject of this article: what the deal is, what it gives each side, what it means for the search market, and why the wedding took so long. The approval came on Thursday, February 18, and the companies are preparing for the transition. The regulators in Europe signed off, the last hurdle fell, and the deal moved from paper to practice. This is the story of the partnership, and the story is about the longest courtship in the history of the internet.

1. The Approval

The approval was the final step, and the final step was the relief. The European Commission cleared the search partnership between Microsoft and Yahoo, the last major regulator to weigh in, and the clearance opened the door. The deal had been announced in July, had been reviewed in Washington and Brussels, and had survived the scrutiny. The approval was the green light, and the green light was the beginning of the work. The lawyers could close their files, and the engineers could start the integration.

The approval was also the anticlimax. The deal had been so long in the making, so many times declared dead, that the approval felt less like a wedding and more like the signing of a treaty. The two companies had fought for years, had negotiated for months, and had ended with a handshake instead of a ring. The regulators added their conditions, the companies accepted them, and the acceptance was the price. The approval was the end of the beginning, and the beginning was the ten-year partnership. The relief was the mood, and the mood was the moment.

2. The Courtship

The courtship was the saga, and the saga was the history. It began in early 2008, when Microsoft made a hostile bid for all of Yahoo, an offer of forty four and a half billion dollars. Yahoo resisted, the talks collapsed, and the collapse was the drama. The price of Yahoo fell, the shareholders screamed, and the chief executive was pushed out. The courtship had failed at the altar, and the failure was the talk of the industry for a year.

The courtship was also the second act. The talks restarted in the summer of 2009, the shape changed from a merger to a partnership, and the change was the compromise. Microsoft would not buy Yahoo; Microsoft would power Yahoo's search, and Yahoo would sell the advertising. The compromise was the landing point, and the landing point was the deal. The two sides had circled each other for so long, had so much history and so much mistrust, that the partnership was the only shape that could hold. The saga was the context, and the context was the weight. The wedding was small, and the smallness was the scar tissue.

3. The Shape

The shape was the partnership, and the partnership was the division. Under the deal, Microsoft's Bing engine would power Yahoo's search results, and Yahoo would take charge of selling the advertising on both companies' sites. The split was the specialization: Microsoft the technology, Yahoo the sales, and the two together the scale. The structure was the compromise, and the compromise was the genius. The two companies would share the revenue, and the sharing was the glue.

The shape was also the exit. Yahoo was giving up the search engine it had built, the technology it had poured billions into, and the giving up was the admission. The company would keep its own front page, its own mail, its own content, and the keeping was the identity. But the search box on Yahoo would be powered by Microsoft, and the powering was the change. The shape was the retreat, and the retreat was the strategy. The company was not disappearing; the company was refocusing. The shape was the deal, and the deal was the division of labor.

4. The Numbers

The numbers were the reason, and the reason was the scale. The combined search share of the two companies would be around thirty percent in the United States, the analysts estimated, and the thirty percent was the challenge to the leader. Google held around two thirds of the market, and the two thirds was the mountain. The partnership was the attempt to build a credible number two, and the credibility was the goal. The numbers were the math, and the math was the strategy.

The numbers were also the economics. The deal promised billions of dollars in additional revenue for Yahoo over the next decade, the analysts calculated, and the billions were the compensation for the surrender. Yahoo would sell the ads on both networks and keep a share, and the share was the revenue. Microsoft would gain the scale it needed to make search profitable, and the profitability was the point. The numbers were the promise, and the promise was the deal. The scale was the survival, and the survival was the reason. The two companies could not beat the leader alone, and the alone was the past.

5. The Rival

The rival was the context, and the context was the war. Google was the giant that the deal was built to fight, the company that owned the search market and the advertising money that came with it. The partnership was the alliance against the giant, the classic move of the number two and the number three against the number one. The history of the industry was full of such alliances, and the alliances were the pattern. The rival was the reason, and the reason was the deal.

The rival was also the calm. Google watched the approval without alarm, the reports said, and the calm was the confidence. The company's lawyers noted the deal, the executives noted the competition, and the notes were the routine. The thirty percent was a challenge, but the challenge was manageable, and the manageability was the position. The rival was the benchmark, and the benchmark was the target. The war would go on, and the war was the business. The alliance was the move, and the move was the fight. The giant was the mountain, and the mountain was the climb.

6. The Doubt

The doubt was the chorus, and the chorus was the press. The skeptics asked whether the deal would actually work, whether the integration would go smoothly, whether the users would notice any difference at all. The history of the partnerships was mixed, the skeptics noted, and the mixed was the caution. The technology handoffs were hard, the cultures were different, and the difficulties were the risk. The doubt was the coverage, and the coverage was the noise.

The doubt was also the question of the future. The search market was changing, the mobile search was rising, the social networks were becoming the new way to find things, and the change was the threat. The partnership was built for the search of the past, the skeptics argued, and the past was the problem. The deal would give the partners a stronger position in a market that was losing its centrality, and the losing was the worry. The doubt was the analysis, and the analysis was the debate. The deal was the answer to yesterday's question, and the tomorrow was the unknown.

7. The Transition

The transition was the work, and the work was the test. The companies had to move Yahoo's search to Bing's engine, had to merge the advertising systems, had to keep the users from noticing the change under the hood. The months ahead would be the integration, and the integration was the risk. The engineers had the manuals, the schedules, and the pressure, and the pressure was the challenge. The transition was the moment of truth, and the truth was the execution.

The transition was also the opportunity. The partnership would give Microsoft the scale to improve its search, more queries, more data, more signals, and the improvements were the hope. The new engine would learn from the new traffic, and the learning was the progress. The two companies would share the lessons, and the sharing was the advantage. The transition was the beginning of the ten-year run, and the run was the bet. The work was the story of the months ahead, and the story was the test of the deal.

8. The Lesson

The lesson of the deal was about the alliance, and the alliance was the wisdom. The number two and the number three in a market cannot always beat the number one alone, and the admission is the strategy. The partnership was the recognition that the war had changed, that the old dreams of winning search outright were gone, and the recognition was the maturity. The lesson was that sometimes the biggest victory is admitting that you cannot win alone.

The lesson was also about the long game. The deal ran for ten years, and the ten years were the horizon. The companies were not looking for the quick win; the companies were building the slow climb, and the climb was the commitment. The partnership was the patience, and the patience was the plan. The approval is the February 2010 story, and the story is the lesson: sometimes the biggest victory is admitting that you cannot win alone. The approval came on Thursday, and the integration began.

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