Yahoo! and Microsoft unveiled a long-awaited Web search partnership on Wednesday that would unite the two companies against market leader Google.
Under the no-cash deal, Yahoo! will use Microsoft's new Bing search engine on its own sites, while Yahoo! will act as the exclusive global sales force for the companies' premium search advertisers.
The agreement between the Internet portal and software giant, which has a 10-year term and will be subject to review by US anti-trust regulators, is expected to close in early 2010, the companies said in a statement.
It is restricted to Internet search and related advertising revenue, while the pair would retain full autonomy over other properties and products such as email, instant messaging and display advertising.
Under the agreement, Microsoft will acquire an exclusive 10-year license to Yahoo!'s core search technologies, and Microsoft will be able to integrate Yahoo! search technologies into its existing Web search platforms.
"This agreement comes with boatloads of value for Yahoo!, our users, and the industry," said Carol Bartz, who replaced co-founder Jerry Yang as Yahoo! chief executive after he rejected a 47.5-billion-dollar takeover bid from Microsoft.
"I believe it establishes the foundation for a new era of Internet innovation and development," Bartz said.
Describing the agreement as a "game-changer," Bartz said it "creates a significant competitive alternative in search."
"This really is a win-win agreement both for Microsoft and Yahoo!," added Microsoft chief executive Steve Ballmer.
They said the transition to Bing on Yahoo! properties is expected take between three to six months after the closing of the deal in early 2010.
Ballmer said Microsoft expected transition costs of "a few hundred million dollars in the first couple of years."
Bartz said a number of Yahoo! search employees will go to Microsoft and "unfortunately there would be some redundancies" at Yahoo!
"We have no numbers to announce at this time," she said. "Nothing will change until we get regulatory approval."
Yahoo! said it stood to gain about 500 million dollars in annual operating income and 200 million dollars in capital expenditure savings from the deal.
The Sunnyvale, California, company also estimated the agreement would provide it with a 275-million-dollar benefit to annual operating cash flow.
Redmond, Washington-based Microsoft said the partnership "will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry."
Ballmer said the deal will enable Bing to better compete against Google, which has a 65 percent share of the lucrative search market according to Comscore, followed by Yahoo! with 19.6 percent and Microsoft with 8.4 percent.
"Through this agreement with Yahoo!, we will create more innovation in search, better value for advertisers, and real consumer choice in a market currently dominated by a single company," Ballmer said.
"This deal will combine Yahoo! and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70 percent of all search," the Yahoo! and Microsoft statement said.
Calling the link-up a "significant opportunity," Yahoo! chairman Roy Bostock said the company's board backed it with its "full and unanimous support."
Initial reaction from analysts and the market was tepid.
Former Merrill Lynch analyst Henry Blodget of Silicon Valley Insider said the deal is "tremendously complex, and it has the potential to be a logistical and regulatory nightmare for both companies."
Yahoo! shares were down 9.47 percent at 15.59 dollars at 10:10 am (1410 GMT) on Wall Street while Microsoft was up 0.43 percent at 23.56 dollars.
