Last week, Marissa Mayer took a big step toward undoing one of her predecessor's business deals by renegotiating Yahoo's search contract with Microsoft.
On Monday, the company filed a document with the SEC that gives some new details. It looks like Mayer drove a pretty hard bargain, and it definitely sets Yahoo up to make more money from the search results it delivers.
Specifically:When Yahoo runs a Bing ad on its site, it keeps 93% of the revenue. That's up from 88% during the first five years of the agreement, and 90% from February of this year, when the two companies first started negotiating. Yahoo has the right to take Bing's algorithmic search results without taking Microsoft's ad listings next to those results. If it does this, Yahoo will owe Microsoft a fee for serving the search results, but won't owe it any revenue share from the ads. After Oct. 1, either company can terminate the agreement "at will." Previously terminating the agreement required proving that the partnership had failed to meet certain performance thresholds.
Before, Yahoo and Bing had an exclusive search deal. All of Yahoo's search listings and paid search ads that appeared on desktop PCs were served by Microsoft, and Microsoft took a portion of the revenue for its ads.
As of May 1, Yahoo is dependent on Microsoft for only a little more than half (51%) of the search ads and the "algorithmic" web search results that it displays on its website. That means that Yahoo could potentially rebuild its own search engine to provide answers to users' queries 49% of the time. And Yahoo can also now sell its own search ads — or potentially pull search ads from another provider such as Google — 49% of the time.
Yahoo also threw sales responsibilities for Bing ads back over to Microsoft.
The question is whether Yahoo can reverse its search share declines as well.
Here are the full terms of the agreement:
Services and Exclusivity
Previously under the Search Agreement, Microsoft was the exclusive algorithmic and paid search services provider to Yahoo on personal computers for Yahoo’s online properties and services (“Yahoo Properties”) and for search services provided by Yahoo to its distribution network of third party entities who integrate Yahoo’s advertising offerings into their Websites and other offerings (“Affiliate sites”). Microsoft was the non-exclusive provider on mobile devices. Pursuant to the Amendment, Microsoft will provide such services on a non-exclusive basis for Yahoo Properties and Affiliate sites on personal computers. Commencing on May 1, 2015, Yahoo agrees to request paid search results from Microsoft for 51% of its search queries originating from personal computers accessing Yahoo Properties and its Affiliate sites (the “Volume Commitment”) and will display only Microsoft’s paid search results on such search result pages.
Additionally, Yahoo will now have the ability in response to queries on both personal computers and mobile to request algorithmic listings only, paid listings only or both algorithmic and paid listings from Microsoft. To the extent Yahoo requests algorithmic listings only or requests paid listings but elects not to display such paid listings, Yahoo will pay Microsoft serving costs but not a revenue share. In other cases and with respect to the Volume Commitment, Yahoo will pay Microsoft a revenue share.
Previously under the Search Agreement, Yahoo had sales exclusivity for Yahoo’s and Microsoft’s premium advertisers. Pursuant to the Amendment, this sales exclusivity will terminate on July 1, 2015. Yahoo and Microsoft will develop a plan to transition premium advertisers for Microsoft’s paid search services to Microsoft commencing on July 1, 2015 and to be completed by January 31, 2016.
Yahoo is entitled to receive a percentage of the revenue (the “Revenue Share Rate”) generated from Microsoft’s services on Yahoo Properties and on Affiliate sites after deduction of the Affiliate sites’ share of revenue and certain Microsoft costs. Under the Search Agreement the Revenue Share Rate was 88% for the first five years and then increased to 90% on February 23, 2015. Pursuant to the Amendment, the Revenue Share Rate will be 93%, but will now apply before deduction of the Affiliate sites’ share of revenue.
Term and Termination
The term of the Search Agreement remains 10 years from its commencement date, February 23, 2010, subject to earlier termination as provided in the Search Agreement. Pursuant to the Amendment, on or after October 1, 2015, either Yahoo or Microsoft may terminate the Search Agreement by delivering a written notice of termination to the other party. The Search Agreement will remain in effect for four months from the date of the termination notice to provide for a transition period, however, Yahoo’s Volume Commitment will not apply in the third and fourth months of this transition period.
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