SEATTLE (Reuters) - Microsoft
Corp's assault on search engine leader Google Inc took a major step
forward on Thursday as U.S. and European regulators cleared the
software company's search partnership with Yahoo Inc.
The
10-year deal, struck last July, is the biggest effort yet by Microsoft
to establish an online business to rival Google, an area where
Microsoft has lost $5 billion over the last four years.
"Microsoft
really has room to throw money at this," said Kim Caughey, senior
analyst at Fort Pitt Capital Group. "I think it can work. If they can
make inroads in specific target areas, they could have something
positive to report."
Microsoft has
already made some progress with its search engine, Bing, picking up 3.3
points of market share since its launch last June. But Bing is not
likely to "push Google off a very big pedestal any time soon," said
Caughey.
The battle for online
search ads is only one front on a sprawling war for revenue between
Microsoft and Google, which also encompasses operating systems and
mobile phones. But neither has yet managed to compete on equal terms in
each other's core market.
"In
terms of our modeling, we really don't see any impact from
Microsoft-Yahoo on our Google numbers," said Clayton Moran, an analyst
at The Benchmark Co.
"It doesn't
change much in terms of the competitive dynamics of the industry right
away," he warned. "From a Google perspective, looking out over the next
couple of years, it's a nonevent."
The
deal, cleared unconditionally by the Department of Justice and the
European Commission on Thursday, is not expected to impact Microsoft's
bottom line, but could lay the foundation of a profitable online
business.
"Really now, the goal is
about share gain. If we grow share, we will grow our way into
profitability, and we have confidence we can do that," said Microsoft's
Yusuf Mehdi, who is charged with making Bing and the MSN portal a
financial success, in an interview with Reuters earlier this month.
Microsoft shares rose 1.2 percent and Yahoo's rose 0.7 percent on Nasdaq, in a broadly higher tech market.
The Justice Department's Antitrust Division said the deal was unlikely to substantially lessen competition.
U.S.
market participants had expressed support for the partnership as a way
to create a more viable alternative to Google, the division said in a
statement issued late Thursday.
Google,
which did not oppose the partnership, did not comment specifically on
the regulatory approval but said that there has always been "robust"
competition in the search ad business. Its shares rose 1.1 percent.
HOW IT WORKS
The deal means Bing becomes the search engine for Microsoft and Yahoo sites, while Yahoo focuses on attracting big advertisers.
Microsoft
will handle the automated auction of search ads for use on both
companies' sites, and pay Yahoo a portion of search ad sales generated
on Yahoo pages.
Microsoft is
hoping that by making itself a single conduit for advertisers to access
customers on both sites, it will become a credible alternative to
Google.
Last month Yahoo handled
17 percent of U.S. Internet searches, while Microsoft took 11.3
percent, according to comScore. Theoretically, that would now give
Microsoft over 28 percent of search traffic, against Google's 65.4
percent.
"At 30 points we are now a credible option, so that number matters," said Mehdi earlier this month.
Globally,
Google is even more dominant, with 90 percent of the search market
compared with 7.4 percent for a combined Yahoo and Bing, according to
November data from Web research firm StatCounter.
FULLY COMPLETE EARLY 2012
The
Microsoft-Yahoo deal was broadly expected to gain approval, but some
had thought the companies might have to alter the deal's terms.
The
partnership took months to hammer out last year. It followed
Microsoft's aborted $47.5 billion Yahoo takeover attempt the year
before. Google abandoned its own advertising deal with Yahoo in 2008,
which Microsoft opposed, under pressure from the U.S. Justice
Department.
Approval means
Microsoft can begin the task of putting its Bing search engine into
Yahoo sites. Neither company has laid out exactly how Yahoo's new
search pages will look, but they will essentially be Bing searches with
some customization of results by Yahoo.
The
companies aim to get the partnership fully operational in the United
States by the end of this year, with the transition of advertisers
taking place before the holiday shopping season, if possible. The
partnership should be globally complete by early 2012.
The
deal had already been cleared by regulators in Australia, Brazil and
Canada, but needed U.S. and European approval to take effect. The
companies said they are still working with regulators in Korea, Taiwan
and Japan.
(Additional reporting by Foo Yun Chee in Brussels and Ian Sherr in San Francisco; editing by Andre Grenon and Richard Chang)