Beyond Binary

Bert and Ernie shared space on Google's home page on Friday with an ad for Motorola's Droid, the Verizon Wireless smartphone that went on sale on Friday.

(Credit: Screenshot by Ina Fried/CNET News)

As the newsroom's biggest Sesame Street fan, I'd be remiss if I didn't highlight the tribute Google paid to the PBS show this week, on the occasion of its 40th anniversary.

On Wednesday, Big Bird's feet and lower body graced the home page, while Thursday saw Cookie Monster nibbling on the Google logo. On Friday, Bert and Ernie served as the O's in Google.

But Bert and Ernie had to share the home page on Friday, as Google also used a front-page link to tout the new Motorola Droid smartphone that went on sale at Verizon Wireless stores.

Although such promotional pitches aren't the norm for its homepage, Google has used them in the past to tout the Chrome browser as well as the first Android phone, T-Mobile's G1.

Big Bird's feet served as the "L" in the Google logo on Wednesday, as the search giant kicked off its tribute to Sesame Street.

(Credit: Google)

As for the Sesame Street "doodles," Google Vice President Marissa Mayer noted that "many Googlers grew up on Sesame Street."

"We're delighted to have partnered with Sesame Street to create this special series of doodles, particularly since we share the same values of education, diversity, and accessibility," Mayer said in a blog posting.

Lest anyone doubt my devotion to the show, here's a video interview I did with Elmo Live, when that toy came out last year.

Microsoft said Monday that it's cutting by a third the subscription prices for the hosted versions of Exchange, Sharepoint, and Office Communications Server.

The software maker plans to cut the monthly per-user cost of licensing all three products from $15 to $10, while the cost of licensing individual products is also dropping by as much as 50 percent. The move comes as Microsoft faces continued pressure from rivals, including Google.

Capossela

(Credit: Microsoft)

Last week, the city of Los Angeles voted to go ahead with a deal to shift many employees to Google Apps from Microsoft Office.

In an interview, Microsoft Vice President Chris Capossela said the move has less to do with competitive pressure than that "it's the price that customers are really excited to buy our suite at."

In addition to the price drop, Microsoft is also touting several new customers and announced its plan to bring the year-old Microsoft Online services to more than a dozen new countries.

The company is announcing its commercial launch in Singapore, as well as trials in Brazil, Chile, Colombia, Czech Republic, Greece, Hong Kong, Hungary, Israel, Malaysia, Mexico, Puerto Rico, Poland, Romania, and Taiwan. Microsoft also expects to have commercial availability in India later this year.

Among the new customers are McDonalds, Aon, Lions Gate Entertainment, and Rexel Group. They join existing customers, such as Blockbuster, Coca-Cola and Autodesk as those paying Microsoft to run hosted versions of its products. Microsoft formally launched Microsoft Online at a San Francisco event a year ago.

Next week, Microsoft will also formally launch Exchange 2010 at its TechEd Berlin developer event. Microsoft said last month that it had finalized the product. Traditionally, Microsoft has developed products first as a server and only later, if at all, customized them to run in hosted form.

Exchange 2010, though, was designed first as an online service and then crafted into a product that businesses can run on their own servers.

Microsoft's top lawyer said that a tentative agreement with Brussels announced earlier Wednesday could potentially allow the software maker to move out of the regulatory crosshairs, perhaps paving the way for regulators to shift their attention elsewhere.

"It's important for us to get closure in Europe on issues that have obviously been controversial for over a decade," General Counsel Brad Smith said in an interview. "Today's decision takes us an important step closer to doing that."

Smith

(Credit: Microsoft)

Microsoft initially took a much different approach to the European Commission's assertion that the inclusion of a browser in Windows violated antitrust law. The company had initially proposed just stripping out the browser from Windows 7 entirely, leaving users the prospect of trying to get a browser on their own. The software maker eventually backed down after indications that that approach was unlikely to fly.

While not final, Microsoft's moves would appear to resolve all of its outstanding regulatory issues with the Commission and were greeted warmly by regulators on Wednesday.

Although most of the early attention focused on the agreement around a browser "ballot screen," Microsoft also announced on Wednesday an agreement around product interoperability. Under that deal, a 10-year commitment by Microsoft, the software maker agrees to publish communication protocols and adopt certain standards as part of Windows, Windows Server, Office and other high market share products. Companies could also purchase for 5,000 euros a warranty that would subject Microsoft to court oversight and monetary penalties if it doesn't live up to its commitments.

Smith said that the approach Microsoft took with regard to interoperability was designed to adopt methods that Nellie Kroes, commissioner for competition, had outlined in a speech last year for how companies with high market share products should behave.

"I actually think this in effect implements the model that the Commission has been advocating," Smith said. Moreover, he said it is a model that other software companies should pay attention to, he said, noting that there are lots of companies that have high market share. He noted that Google has 78 percent of the paid search market and IBM has 100 percent of the mainframe market, while Adobe also has dominant positions in certain areas, such as Photoshop.

"It is important we believe to create a level legal and regulatory playing field," Smith said. "Everyone that has a high market share needs to respect the same set of rules. I think a number of these rules are likely to be applicable to other companies and other products."

Settling now with Brussels also could help Microsoft in its effort to win approval for its search deal with Yahoo, Smith said.

"This certainly isn't going to hurt when it comes to the Yahoo-Microsoft agreement," he said. "It's not necessarily going to make a huge difference. We didn't feel a particular step was needed to help it along."

Microsoft is in the process of trying to ascertain whether the deal needs approval from Brussels or from individual European antitrust authorities. It also needs approval from U.S. regulators, who have asked for more information on the deal.

REDMOND, Wash.--Steve Ballmer is never at a loss for words, but that doesn't mean he always spills the beans.

Such was the case with the top-secret Courier dual-screen tablet that Microsoft is said to be working on.

As part of an interview for our new CNET Conversations program, Microsoft's chief executive said he had nothing to say about the product. "I really don't," he told me and CNET TV colleague Molly Wood. (My sources tell me the project is real and that Courier is one of many prototypes, though that's about all I've managed to learn so far.)

The video of our interview is embedded here. For the full interview in text form, check out the transcript on the CNET Conversations Web page.

Ballmer was not similarly tongue-tied when it came to talking about his optimism for technology, his thoughts on the economy, or his company's competition with Apple and Google.

As for the economy, Ballmer said that things aren't getting worse, but didn't want to go as far as Google CEO Eric Schmidt who recently declared the economy is improving.

"Well, I think any sort of forecast at this stage is probably a little bit premature," Ballmer said. "Thank goodness we haven't fallen off a second cliff, which certainly in some economic times we have, but unemployment rates are still high and growing, so it's a little hard for me to say the worst of the recession is behind us when there's still a lot of families both out of work and more families out of work every day."

... Read more

Microsoft on Thursday lashed out against Google Chrome Frame--an Internet Explorer plug-in that supplants IE's rendering engine with Google's.

The software maker, in a statement, said users are better off moving to a later version of Internet Explorer if they want the latest technology as opposed to using Chrome Frame.

Google plans to use Chrome Frame to, among other things, allow people to run Google Wave from within Internet Explorer.

(Credit: Google)

"With Internet Explorer 8, we made significant advancements and updates to make the browser safer for our customers," Microsoft said. "Given the security issues with plug-ins in general and Google Chrome in particular, Google Chrome Frame running as a plug-in has doubled the attach area for malware and malicious scripts. This is not a risk we would recommend our friends and families take."

However, some took Microsoft to task for criticizing plug-ins, noting that Redmond itself has more than a few.

"Microsoft scared of security of plug-ins. Uninstall Silverlight now," Mozilla's Dion Almaer wrote in a Twitter posting.

Google announced Chrome Frame on Tuesday, saying it can be used with Internet Explorer 6, IE7, or IE8 to use Chrome to render Web pages and execute their JavaScript programs. To work, users have to install the plug-in and Web developers must insert a line of code onto their Web sites that engages Chrome Frame when a person visits the site.

Update, 12:35 p.m. PT: I had a chance to chat with Amy Barzdukas, general manager for IE.

In addition to reiterating the security risks associated with running what she called "a browser within a browser," Barzdukas said that using Chrome Frame also interferes with the private-browsing and clear-browser-history features within Internet Explorer 8.

"That is not made clear," Barzdukas said. "That is a trade-off that customers would really want to make with eyes wide open."

Barzdukas also rejected the notion that it offers a good option for those still using Internet Explorer 6.

"If you are a user of IE6, you should get off IE6, not install another add-on," she said. "It just compounds your problem."

Update 3:20 p.m. PT: Google offered up a statement on its own, explaining its thinking behind Chrome Frame.

"Google Chrome Frame is an open source plug-in that is currently in an early developer release and was designed with security in mind from the beginning," Google said. "While we encourage users to use a more modern and standards compliant browser such as Firefox, Safari, Opera or Google Chrome rather than a plug-in, for those who don't, Google Chrome Frame is designed to provide better performance, strong security features, and more choice to both developers and users, across all versions of Internet Explorer."

Although it does increase the surface area, Google notes it brings some security features of its own, particularly for those running IE6. "Accessing sites using Google Chrome Frame brings Google Chrome's security features to Internet Explorer users, providing strong phishing and malware protection (absent in IE6), robust sandboxing technology, and defenses from emerging online threats that are available in days rather than months," Google said.

Although the conventional wisdom is that the rise of the Netbook is hurting the Windows business, a Microsoft executive said Tuesday that lower-cost laptops can actually be a good thing.

Speaking at an investor conference, general manager Charles Songhurst said that overall, most people buying Netbooks are either multiple PC owners in developed markets or first-time PC buyers in emerging markets.

"From what we see they are incremental," Songhurst said. "They are new scenarios."

Even if that is true, the fact is that Netbooks have been growing in numbers, while traditional PCs have slumped--a shift that has undeniably hurt the average amount of money Microsoft is getting for each copy of Windows.

One of the opportunities, Songhurst said, is if Microsoft can gain additional revenue on high-end PCs, noting that Microsoft has tended to get about $50 in Windows revenue for the standard $1,000 PC. (Microsoft tends not to talk about how much it charges PC makers for Windows, so it was interesting to hear him mention that figure a couple of times during his chat, which was available as a Webcast.)

Songhurst

(Credit: Microsoft)

Asked about Google's forthcoming Chrome OS, Songhurst said that while it could be a threat if it is demonstrably better, just being cheaper won't offer much of a threat, saying the quality of Windows 7 will help the company fend off new competition. Microsoft plans to launch Windows 7 on October 22, while Google's Chrome OS is not expected until next year.

As for whether Apple might gain ground inside corporations, Songhurst said that Apple isn't winning over the key executives that make technology purchases, such as chief information officers.

"If they are not compelling to the CIO, they are not going to make inroads in the enterprise," he said.

On the Bing front, Songhurst acknowledged that even if Bing is getting good results in the U.S., the company faces an even larger hurdle in the global market, where Google has nearly 70 percent share. Songhurst said that although Bing's engine is available globally, it has yet to put the same kind of marketing dollars overseas as it has in the U.S.

"That marketing push makes a (big) difference," Songhurst said.

One of the other things Microsoft has done is sign deals with companies such as Hewlett-Packard and Lenovo to make Bing the default search engine on new PCs. Asked if Microsoft is eying more such pacts, Songhurst said yes.

"Always we'll do distribution deals for Bing," Songhurst said. "We're quite active in getting out and competing for those."

Microsoft's search deal with Yahoo is the culmination of months of well documented negotiations, but in many ways, it is just the beginning of the long road ahead.

In the coming months, Microsoft and Yahoo will not only have to win regulatory approval for the deal, but also figure out how to bring together disparate approaches to the search market.

Microsoft has spent much of its energy in the last couple years refining its core technology, improving in vertical categories, and rebranding its Web search under the Bing moniker. Yahoo, meanwhile has put a lot of energy into tools that allow others to build on its technology, including the BOSS (Build your Own Search Service) and SearchMonkey efforts.

Mehdi

As part of the deal announced on Wednesday, Microsoft will now be responsible for trying to merge those efforts. In an interview, Microsoft Senior Vice president Yusuf Mehdi said Microsoft hasn't looked at the specific lines of code in that area, but is open to trying to take Yahoo's best ideas and integrate them into Bing.

"We like the approach that Yahoo has done," he said, referring to SearchMonkey and BOSS.

Both Mehdi and Yahoo Executive VP Schneider acknowledged that there are integration challenges, but Schneider said there is a clear delineation of who is responsible for what.

"At the same time we are integrating, we are really divide-and-conquering," Schneider said in the joint interview with Mehdi. "The reality is in the way we structured (the deal), it allows each of us to innovate in the areas that will jointly bring advantage."

The fact that the companies have already spent time thinking about these issues reflects the different nature of the discussions this time around.

Whereas last year's negotiations were done with Yahoo's board and a keen eye on Wall Street, the deal announced on Wednesday is much more focused on how to build a search business for the long term.

CEO Steve Ballmer noted on the conference call earlier Wednesday that the two sides have a 100-page playbook as opposed to a two-page term sheet and also noted that the negotiations were handled by management as opposed to representatives of the company's boards.

Schneider

In addition to being run by the top management from Microsoft's online group, including Mehdi, Senior Vice President Satya Nadella, and online unit President Qi Lu (a former Yahoo executive), Mehdi and Schneider said the negotiating teams routinely called on the companies' engineering and sales ranks to make sure the deal they were structuring made operational sense.

It wasn't just the typical few business development executives in a room hashing out financial details, the pair said. "We really have got a great vibe with Yahoo's operating team," Mehdi said.

The two companies will be able to do some work on their joint plans while the deal is pending, but there are limits as to how much collaboration can take place.

"We will do all of the pre-work that we are allowed to do in terms of preparing," Mehdi said. "We feel like we can make a lot of progress."

Ultimately, though, the two companies said they expect just integrating Bing's results into Yahoo in the U.S. will take several months, while moving from Yahoo's Panama ad-serving technology to Microsoft's AdCenter could take a year. It could be two years from the deal close before the two companies can fully implement the deal across the globe.

Microsoft's Mehdi didn't close the door on an eventual expansion of the deal into some of the areas the two companies had at one point considered, such as joint work on display advertising.

"Today is a start on a fantastic partnership which we are very excited about," Mehdi said. "By starting this partnership it allows us to over time build greater and deeper relationships. Right now the focus is on getting to a credible No. 2 player in search and paid search."

One of the open questions is what will happen to each company's business and workforce during the time that the deal is pending. Schneider said the companies have a communications plan for employees as well as the sorts of retention bonuses planned to keep key employees in place.

"We believe this is a winning plan," she said. "People want to be part of a winning vision."

Ultimately, Yahoo CEO Carol Bartz said some of Yahoo search employees will move to other parts of the company, some will be offered jobs at Microsoft, while others will eventually lose their jobs.

For his part, Mehdi said the company will continue to beef up its search staff while the deal is pending. "We are continuing to hire and invest in search."

Roughly 18 months after the word Microhoo entered the technology lexicon, the two companies finally have a partnership to speak of.

As part of a 10-year pact announced early Wednesday, Microsoft's technology will power the two companies' search sites, while Yahoo will handle ad-selling duties.

Executives from both companies will discuss the deal in a conference call from Yahoo's headquarters in Sunnyvale, Calif., at 5:30 a.m. PDT. Follow the live coverage here.

5:32 a.m.: Still listening to meditative hold music. They really could use something more upbeat.
5:33 a.m.: Getting the details on how conference calls work. Apparently we'll be in some sort of "listen-only mode."
5:34 a.m.: There will be some forward-looking statements. (Stuff they predict may or may not happen.)
5:35 a.m.: Yahoo CEO Carol Bartz says deal is a game changer "and I'm glad to finally be able to talk about it." She added: "We face a formidable competitor in one area and that area is search."
5:37 a.m.: Yahoo's sales force will handle sales of both sites' search. Self-serve ads will be fulfilled via Microsoft's AdCenter.

"What this deal is really about for everyone is scale," Bartz said. By combining, they can deliver a viable alternative.

Funny how it's all about Google, but she's not naming Google.

"Everyone wants a real alternative and advertisers are no different," Bartz said.

"Powered by Bing" will appear at the bottom of the Yahoo search results.
5:40 a.m.: "This agreement has been a longtime coming," CEO Steve Ballmer said. Um, yeah.

Ballmer continues: the bottom line is the agreement will enable us to create more innovation in search, better value, and world peace. (Maybe not the latter. Remember, these are forward-looking statements.)

It's apparently a win-win.

"Both companies benefit from scale and better economics. Consumers really will get better products," Ballmer said.
5:42 a.m.: Bartz talking nitty-gritty details. Both companies will have separate display-ad sales forces. Microsoft will pay Yahoo 88 percent of revenue for search ads on Yahoo sites.

"Our revenue will come down a bit due to revenue sharing," Bartz said, but added that operating income should rise, expenses drop, etc.

"This deal won't happen overnight," Bartz said. First, the companies will have to convince regulators it's a good thing.

Assuming they get the OK, the companies will start with major markets, including the U.S., which will transition to using Bing results in 3 to 6 months. Shifting from Yahoo's Panama paid search tool to Microsoft's AdCenter will take 12 months. Full global roll-out should take 24 months.
5:46 a.m.: On to the Q&A.

So why not display advertising? "We wanted to keep this as simple and straightforward as possible," Bartz said.

"We're taking a big bite here," Ballmer said. "Search is a more well-known thing" when it comes to automating the ad-selling.

How big is the revenue-per-search gap? (Microsoft is guaranteeing a certain amount of revenue for each search query to Yahoo.

"We and Yahoo are sort of close and we both lag Google," Ballmer said. Some of that is scale, he said which will be helped by deal.
5:49 a.m.: Why no "boatloads of cash" from Microsoft. Why wasn't there an up-front payment?

"Having a big cash payment up front doesn't really help us from an operating standpoint," Bartz said. As far as we're concerned, she said, the "boatloads of cash" is preserving our revenue line.
5:51 a.m.: The two companies have talked about the financial impact to Yahoo, but what about Microsoft?

Ballmer acknowledges that most of the revenue from Yahoo's search results will go back to Yahoo. "We paid a high TAC rate," he said, referring to traffic acquisition costs and the 88 percent of revenue that Yahoo will get.

Microsoft will spend "a couple of hundreds of millions" of dollars for implementation and transition costs "We're sort of betting into the future," Ballmer said. The upside, he said, is better relevance. "Ads are part of being relevant and we have a better chance of being relevant." Ballmer said it should improve relevance on both sites. The upside comes as execution really builds.

"There's a lot of work involved in this transition to our platform," Ballmer said.
5:56 a.m.: Any opposition in Washington?

"We expect we will face some opposition from...the competitor," Ballmer said. (Assuming he is talking about Google and not Ask.com)

Ballmer said that the deal benefits advertisers, publishers, and consumers.

"Obviously, we will be called to present that case in D.C. and Brussels and other places," Ballmer said.
5:58 a.m.: What about impact on jobs?

"There are certainly many Yahoo search employees that will be asked to take jobs at Microsoft as they integrate the technology," Bartz said. "There will also be search employees that we look to help us on the display side... And then unfortunately, there will be some redundancies in Yahoo."

Nothing will change until we get regulatory approval, which we hope is in early 2010, Bartz said. "There will be redundancies, but it will be in the future." Bartz didn't give an estimate of how many jobs will be lost.
6:01 a.m.: The most complex part of the deal, Ballmer said, is around protecting privacy and allowing both companies to build their products around search.

"You really have to say what data gets shared and how does it get shared," he said.

6:03 a.m.: How can Yahoo innovate if Microsoft is in charge of the technology?

"There is a lot of innovation that happens above the search results," Bartz said.
6:04 a.m.: What does this mean in terms of mobile and platforms beyond the Web?

"We spent time talking about mobile," Bartz said. "We have the option of using the Microsoft technology for the mobile Web experience. It's not exclusive as it is on the PC. The only difference is it is not exclusive. If somewhere down the road we wanted to switch, we could."
6:06 a.m.: What is the rate when Yahoo sells on Bing.com? What is the risk and impact on Yahoo's affiliates? What about all of the 800,000 advertisers that are running their campaigns only on Google.

Yahoo actually doesn't get split of Bing revenue.

"When the Yahoo sales people sell (they) don't know whether will sell on Yahoo or Bing," Ballmer said. "You are buying the keyword in both environments."

As for Google-only advertisers, Bartz said that combining Panama and AdCenter will help. "Smaller advertisers want to make sure there's a meaningful market, and they don't want to learn three platforms."

Ballmer said that the bulk of Google-only advertisers are outside the U.S. where the companies have even less share. Google has 78 percent of the paid search market here, but in Western Europe, Ballmer said, it is more like 92 percent.
6:12 a.m.: How much code will come from Yahoo vs. Microsoft's Bing. Our engineers know Bing, Ballmer said, but he added that Microsoft will be getting access to any technology from Yahoo. "We have a license to code."

Ultimately, though, Ballmer said, Microsoft will have to make those choices and build a product that is financially more successful than its current search effort. "The burden is on us to deliver the goods."
6:17 a.m.: Why is this deal better than one on the table last year.

"I've done some exploring of that," Bartz said. "There's actually more fiction in the market than there is fact."

The search partnership discussed last year would have had a big up-front payment, but would have generated less revenue over the long term for Yahoo.

"We really are trying to run a long-term business here," Bartz said.

Ballmer noted that last year's deal was negotiated more by the boards than by the operating management.

"The deal is different...For Microsoft, this deal is not better, but this deal is different," Ballmer said.
6:21 a.m.: Who will be in charge of execution?

There will be a team from both sides, Bartz said.

"This is not a minor project," Ballmer agreed. "This is a major execution (challenge)," he said, noting that for Microsoft, the team will include the top leadership of the online business, including former Yahoo executive Qi Lu.

"It's not like we come here with a two-page term sheet," Ballmer said. "I think we have well over 100 pages written to describe what we are doing."

Bartz acknowledged that a partnership is harder in some ways than going it alone. That's why the companies wanted to make sure they were really committed to one another.

"Dating is one thing," she said. "Having a partnership is another."
6:28 a.m.: Call ends, with a pitch for the companies' joint Web site www.choicevalueinnovation.com. (I guess ButItsNotGoogle.com was taken.)

Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer were all smiles on Wednesday morning.

(Credit: Yahoo/Microsoft )

Microsoft CEO Steve Ballmer uses a giant pen to sign the 10-year deal, alongside Yahoo CEO Carol Bartz, on Wednesday at Yahoo's headquarters in Sunnyvale, Calif.

(Credit: Yahoo/Microsoft )

After months of fits and starts, Microsoft and Yahoo on Wednesday announced a 10-year search deal that will see the two companies join forces to take on Google.

"In simple terms, Microsoft will now power Yahoo search while Yahoo will become the exclusive worldwide relationship sales force for both companies' premium search advertisers," the companies said in a joint statement. The deal is expected to go into effect in 2010 and improve Yahoo's profitability, though not its revenue, the companies said.

Less expansive than the all-out, $44 billion acquisition Microsoft proposed last year--and even than some of the search partnerships once discussed--the deal does allow the companies to share resources and combine their engineering efforts. Even together, however, the two companies have only about 30 percent of the search market compared to Google, which has more than twice that amount.

"This agreement gives us the scale and resources to create the future of search," Microsoft CEO Steve Ballmer said in a statement. "Success in search requires both innovation and scale. With our new Bing search platform, we've created breakthrough innovation and features. This agreement with Yahoo will provide the scale we need to deliver even more rapid advances in relevancy and usefulness."

Yahoo CEO Carol Bartz, meanwhile, said that the move will help Yahoo focus on other areas, also adding that the deal has the full support of the company's board (lest anyone wonder what Carl Icahn thinks about the more limited deal).

"This is a significant opportunity for us," Bartz said. "Microsoft is an industry innovator in search and it is a great opportunity for us to focus our investments in other areas critical to our future."

Editors' note: The two companies had a conference call Wednesday morning to discuss the deal. Click here for our live-blog coverage of that event.

The dollar value
As for the financial terms, there is not the large upfront payment once discussed. However, Microsoft will offer both revenue guarantees to Yahoo as well as the lion's share of the search-advertising revenue generated on Yahoo's site.

That apparently wasn't enough to satisfy investors. In trading before the market opened, Yahoo's stock dropped more than 7 percent, or $1.28, to $15.94. Microsoft rose 1 percent, or 24 cents, to $23.71.

Yahoo will get 88 percent of search revenue created by its sites during the first five years, while Microsoft will guarantee a certain level of search revenue for 18 months in each country. The companies expect it will take about two years after the deal is approved to fully get the partnership up and running.

Once fully in place, Yahoo said it expects the deal will boost its annual operating income by about $500 million, while reducing capital expenditure by $200 million and increasing operating cash flow by about $275 million per year.

Microsoft will be able to incorporate Yahoo's search technology, including its Panama ad-selling tool, but the companies will use Microsoft's AdCenter sales tool and Bing search engine to power both sites.

Aiming to head off privacy concerns, the two companies noted that "the agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies."

The deal must still pass regulatory muster and the two companies anticipate it will take several months to finalize. "Microsoft and Yahoo expect the agreement to be closely reviewed by the industry and government regulators, and welcome questions," the companies said. "The companies are hopeful that closing can occur in early 2010."

Microsoft and Yahoo are joining forces in search, but in a line clearly aimed at regulators, the companies take pains to note that their collaboration is limited to that arena.

"The agreement does not cover each company's Web properties and products, e-mail, instant messaging, display advertising, or any other aspect of the companies' businesses," they said. "In those areas, the companies will continue to compete vigorously."