Yahoo is earning so little under its search deal with Microsoft that Microsoft is having to make up the difference due to a revenue guarantee. This may lead to Yahoo needing a new partner, such as Google. Yahoo chief financial officer, Tim Morse, said ‘Both companies continue to work hard to materially improve the performance, and we plan to provide an update on our joint efforts at our next earnings call.‘
Microsoft is duty bound to pay a guaranteed minimum in an agreement that was due to expire on March 31 this year. But in October 2011 Yahoo announced Microsoft had agreed to continue paying through March 31 next year. Mark Mahaney, MD and internet analyst for Citi Research guesses that the gap on ‘revenue per search’ (RPS) is likely to be around 50%, but Yahoo aren’t saying the actual figure.
Yahoo can’t walk away without finding a new partner, and the choices are limited. Google seems like the only contender.