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7/30/2009
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Senate To Review Microsoft, Yahoo Deal

Subcommittee on antitrust will closely examine search alliance, chairman vows.

The chairman of the Senate's subcommittee on antitrust issues said the body will scrutinize Microsoft's search alliance with Yahoo for competitive issues.

Senator Herb Kohl (D-Wisconsin) said that the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy, and Consumer Rights will "closely" eye the agreement.

"The deal between Yahoo and Microsoft—industry giants and direct competitors in Internet advertising and search markets—warrants our careful scrutiny," said Kohl, in a statement.

"Our Subcommittee is concerned about competition issues in these markets because of the potentially far-reaching consequences for consumers and advertisers," said Kohl. "The implications of this proposed joint agreement will be closely reviewed by my Subcommittee," Kohl added.

After months of negotiations, Microsoft and Yahoo unveiled a wide ranging search alliance under which Microsoft's Bing technology will power queries on all of Yahoo's Web properties while Yahoo assumes broad sales responsibilities for both companies' Internet platforms.

Microsoft's AdCenter platform will serve as a self-service search advertising tool for both companies. The deal does not extend to Internet display advertising. Yahoo, meanwhile, will continue to "own" the overall user experience on its search pages, though Bing will carry out the actual queries.

Microsoft will compensate Yahoo for traffic from Yahoo's sites under a revenue sharing formula under which Yahoo will retain 88% of the search revenue generated on its pages for the first five years of the deal. Yahoo said it expects the arrangement to add $500 million to annual operating income and $275 million to cash flow while cutting capital expenses by $200 million.

Tempering any antitrust concerns is the fact that, combined, Microsoft and Yahoo's share of the search market would still be less than half of that held by Google.

Google presently controls about 65% of the U.S. search market, while Microsoft owns only about 8% of the market, according to the most recent numbers from ComScore. Yahoo, the number two player, holds 20% of the market.

Yahoo shares were off 5.6% to $14.29 in midday trading Thursday; Microsoft shares were up .64% to $23.95.

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