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Yahoo Faces Off Against Google In Search War With Microsoft Funds

Microsoft is planning to reimburse Yahoo an extra $150 million above what was originally expected in the search agreement between the two, while Yahoo is identifying 400 engineers it will send to Microsoft, once they receive regulatory approval.

The urgency in going forward on the deal comes as advances in search engine offerings come quickly.

Yahoo on Thursday said on its Search Blog that it now provides a separate feed of Twitter "tweets" after the regular search results.

That came on the heels of news that Google added search results from Twitter and FriendFeed, as well as from news sites and blogs, in real time, and that the Google Search Appliance can also now search Twitter tweets in real time as well.

The agreement between Microsoft and Yahoo is aimed at helping them work together against common search rival Google.

Yahoo and Microsoft in July said they will work together in the online search and advertisement business, with Microsoft's Bing powering Yahoo's search capabilities and Yahoo becoming the exclusive worldwide relationship sales force for both companies' premium search advertisers.

Under the terms of the agreement, Microsoft will compensate Yahoo through a revenue-sharing agreement based on traffic generated on Yahoo's online properties and will pay Yahoo traffic acquisition costs at an initial rate of 88 percent of generated search revenue. Each company maintains its own display advertising business and sales force.

The Associated Press on Thursday reported that Microsoft is planning to reimburse Yahoo $150 million for expenses related to the agreement. This $150 million is in addition to the $50 million per year that Microsoft will pay Yahoo in each of the first three years of the ten-year agreement.

The payments are subject to regulatory approval.

Yahoo is also in the process of identifying about 400 engineers and some executives it will send to Microsoft to work on search technology, said Tim Morse, executive vice president and CFO of Yahoo.

Morse, speaking this week at the Barclays Capital Global Technology Conference in San Francisco, said that Yahoo has been working behind the scenes to identify the people and the path needed to make sure the transition for both the algorithm and the search happen as seamlessly as possible, both for users' benefit and for the financial impact expected for the two companies.

"We are well down the line," Morse said. "We have dedicated teams running the search business, running the transition of the search business. Some very seasoned executives on those teams. There's nothing more important for us over this next 'x' number of quarters as we transition. This again is extremely important to the foundation of what will be our company going forward."

Getting regulatory approval for the deal will have a big impact on Yahoo, Morse said.

"At that point, we start getting reimbursed by Microsoft for the costs of running our paid search and algorithmic search businesses," he said. "That is a terrific financial benefit for us that starts right off. Part of that total benefit will be these 400 or so engineers that move over. But far greater than that, that savings will be a meaningful impact to us in 2010, as soon as regulatory approval happens."

Morse's presentation at the Barclays event can be heard by clicking here.

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