You're Working for Microsoft! Yahoo?

As part of a search deal, Microsoft is paying $150 million and getting 550 Yahoo employees.

By Owen Thomas
|  Wednesday, Aug 5, 2009  |  Updated 2:30 PM EDT
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You're Working for Microsoft! Yahoo?

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Microsoft once offered $45 billion to buy all of Yahoo and its 16,000 employees.

Now, in the wake of a deal to share Web search technology and revenues between the two companies, Microsoft is hiring 400 Yahoo employees permanently, and another 150 to help with the transition, according to a filing with the Securities and Exchange Commission.

In the deal, announced last week by Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz, Yahoo essentially exited the business of developing Web-search technology, agreeing to hand over its search innovations and use Microsoft's Bing search engine. Yahoo will handle high-end direct sales for both its Web search pages and Microsoft's, while Microsoft will run automated, self-service sales for both sites.

Microsoft has also agreed to pay Yahoo $150 million over three years to implement the agreement, and Yahoo will get a rich share of revenues from its search sales: 88 percent, increasing to 93 percent after five years if Microsoft does not continue the direct-sales arrangement. (Google's average revenue share with partners is much lower, at 74 percent.)

It's inevitable that Yahoo will shed some employees to Microsoft in the deal. The only question: Why would they want to go along? Microsoft has been actively recruiting Yahoo engineers for some time. Its new online chief, Qi Lu, joined Microsoft from Yahoo this year.  But most balked at the idea of working for Microsoft -- a resistance which helped spur Yahoo's decision to reject Microsoft's deal to buy the entire company in 2008.

One would think any Yahoo who wanted to join Microsoft would have made the jump already. That's the booby prize Microsoft won in this deal: hundreds of new employees who are likely less than thrilled to be working for Bill Gates & Co -- and equally annoyed with Yahoo for dumping them on Microsoft. What's the price of bad morale? Unlike a search deal, there's no easy percentage to put on it.

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