Microsoft and Yahoo said Friday that they have finalized the terms of their broad search alliance, which was announced earlier this year.

"Microsoft and Yahoo believe that this deal will create a sustainable and more compelling alternative in search that can provide consumers, advertisers and publishers real choice, better value, and more innovation," the companies said in a joint statement.

"Yahoo and Microsoft welcome the broad support the deal has received from key players in the advertising industry and remain hopeful that the closing of the transaction can occur in early 2010," the companies said.

Microsoft and Yahoo announced the deal on July 29. Under the ten-year pact, Microsoft will place its Bing search engine on all Yahoo sites and, initially, keep 12% of the revenue from Yahoo-driven searches. Yahoo will handle sales and marketing for premium search ads for both its own properties and Microsoft's.

Also, Microsoft agreed to hire a minimum of 400 Yahoo employees on a full-time basis as it extends Bing to Yahoo's Web sites. It will also hire an additional 150 Yahoo workers to help with the transition.

SEC filings show that Yahoo can terminate the arrangement if search traffic generated by the alliance falls below a specified percentage of Google's traffic. Yahoo also retains the right to expand the partnership by adding Microsoft's mapping and mobile search services to its Web properties.

Microsoft must submit to Yahoo copies of all data it collects from its sites while providing search services, according to the filing.

Yahoo CEO Carol Bartz has said that, by in effect outsourcing search to Microsoft, her company can save $200 million in annual capital expenditures through reduced spending on search-related operations. The companies said it could take up to two years for them to fully implement their agreement.

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