Microsoft and Yahoo! have won regulatory approval for their search partnership to challenge Google, the marker leader.

Under the terms of the ten-year “Microhoo” partnership, Yahoo! will use Microsoft’s new Bing search engine technology on its own sites, while Yahoo! will act as the exclusive global sales force for the companies’ premium search advertisers.

The agreement between the struggling internet portal company and software group will run for ten years, giving them an opportunity to provide advertisers with a viable rival to Google’s money-making online advertising platform.

The deal was approved without restrictions by both the US Department of Justice and the European Commission. The companies said they plan to begin the partnership soon and have it completed by early 2012. Steve Ballmer, the Microsoft chief executive, said the regulatory approvals were an “exciting milestone”.

The Bing search engine will process search requests and steer search-related advertisements on Yahoo! popular websites while Yahoo! will still control the user experience. Yahoo! is due to get 88 per cent of the revenue generated from the advertisements placed alongside the search results on its sites. Yahoo! has said it stands to gain about $500 million in annual operating income and $200 million in capital expenditure savings from the deal.

Carol Bartz, the Yahoo! chief executive, said: “This breakthrough search alliance means Yahoo! can focus even more on our own innovative search experience.”

Since Microsoft launched Bing in June, it has slowly gained market share amid generally positive reviews. But it remains a distant third behind Google and Yahoo! which has been losing market share. In the US market Google has about two-thirds market share, with the combined share of Microsoft and Yahoo! at about 28 per cent.

Worldwide, Google is even further ahead. Google has about 70 per cent of the global search market compared with around 10 per cent for a combined Yahoo! and Bing. Google abandoned its own advertising alliance with Yahoo! in 2008 under pressure from the Justice Department. Microsoft had opposed the proposed tie-up after failing in a $47.5 billion takeover bid for Yahoo!

Analysts said how the two companies handle the planned transition will be crucial to the partnership’s success in countering Google’s dominance.

The companies said in a joint statement: “Yahoo! and Microsoft will each represent and provide customer support to different advertiser segments. Yahoo!’s sales team will exclusively represent and support high-volume advertisers, search engine optimisation and search engine marketing agencies, and resellers and their clients. Microsoft will represent and support self-service advertisers.

“Once the transition is completed, the companies’ unified search marketplace will deliver improved innovation for consumers, better volume and efficiency for advertisers and better monetisation opportunities for web publishers through a platform that contains a larger pool of search queries.”

Microsoft and Yahoo! said they continue to work with regulators in South Korea, Taiwan and Japan to provide all relevant information necessary for them to evaluate the transaction before the deal is launched in those countries.
-By Mike Harvey, San Francisco