The battle of Internet Giants is back. As per a new deal, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.

Microsoft ’s new search engine Bing was already expanding and getting great reviews, while Yahoo! has an established presence in the online advertising space. Now Bing will expand even faster and get the scale it needs to compete with Google in the search engine space, while Yahoo will get the advertising business foothold it needed to compete with Google Adwords. Basically speaking, instead of buying each other out as before, now they have stopped competing in their common niche, and instead given way to each other where their strength lies.

Some  key terms of the agreement are as follows:

• The term of the agreement is 10 years
• Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing web search platforms;
• Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology.
• Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.
• Each company will maintain its own separate display advertising business and sales force.
• Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology.
• Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites.
• Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88% of search revenue generated on Yahoo!’s O&O sites during the first 5 years of the agreement.
• Yahoo! will continue to syndicate its existing search affiliate partnerships.
• Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country.

For more information here are the Techcrunch notes from this morning’s Yahoo-Microsoft conference call. Catch Yahoo! CEO Carol Bartz explaining the agreement in this video.

In fact they set up a new site www.choicevalueinnovation.com to showcase the Microsoft Yahoo! deal.

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