Yahoo/Microsoft Search Deal Expected Tomorrow

Yahoo and Microsoft are expected to announce tomorrow the search deal that’s been three years in the making, according to many sources. If we do see a deal, expect it to be structured something like this:

–Bing will become the default search engine on Yahoo, while Yahoo will take over Bing’s search inventory to sell search ads.

–Yahoo could get some form of upfront payment (speculated to be $1 billion to $3 billion) and search revenues for the first few years of the deal, less traffic acquisition costs.

–Yahoo’s display ad business could be used across both content networks.

Regardless of the fine print, the main point is that it could consolidate the strengths of each company, allowing Yahoo to focus on the online consumer media brand that it’s become, and Microsoft to focus on search technology. Yahoo also gets a much needed boost to its inventory levels and search marketing revenue potential.

The deal would also create a second-place search engine with roughly 30 percent market share to contend with Google’s 65 percent share. This would be good for users and advertisers, giving both a more formidable (than previously) alternative to Google. This was the idea behind the Microsoft’s failed takeover of Yahoo last year, and is essentially the second best thing.

If the deal goes through, it will take a while to reconcile and consolidate disparate systems, advertisers and personnel. Of course, it will also be pending Justice Department approval in the face of likely lobbying from Google against the deal. The ironic twist here is that Microsoft previously lobbied against Google’s search deal with Yahoo.

More on the deal after it’s actually announced.