Hey Microsoft, How 'bout We Do That First Deal You Offered?

The four year deal (which Yahoo can extend to ten years) seems great on the surface. It's non-exclusive and doesn't require Yahoo to place any ads.

But the non-exclusivity isn't real, because there's no one else out there that can compete with Google's search ad rates anyway. And while there is no requirement for Yahoo to place any number of ads, if they don't generate at least $83 million in revenue to Google every four months Google can terminate the deal.

And then there's the matter of the extremely complicated $250 million (minus any net revenues Google received from running advertisements) termination fee should Yahoo merge with anyone else (with easier triggers for mergers with Time Warner, News Corp. or Microsoft). If Yahoo merges with anyone Google can terminate the agreement and force Yahoo to pay them $250 million. Time Warner, News Corp and Microsoft only have to acquire 35% of Yahoo's stock to trigger this position.

But then things get a little neurotic. If Microsoft acquires between 15% and 35% of Yahoo, Google can terminate but not collect the $250 million fee. Over 35%, Google gets the fee.

I'm calling this the "If our shareholders or the government kill this deal, as is highly likely, then we get to try things with Microsoft and don't have to pay you off" fee.

If you want to wade through the language yourself, the summary is here.

Bottom Line

Yahoo has pissed off shareholders and a looming meeting - they can't ignore reality much longer. And reality says Yahoo's future is bleak. They continue to lose market share, they have serious brain drain and morale has never been lower.

The Microsoft search deal seals their fate permanently, and I can understand why they didn't want to do it. This Google deal is their only alternative at this point. They can get out of it at any time, simply by not serving Google's ads. But as long as it's live they'll see their advertisers flow to Google instead of their own search platform, and they have to pay a hefty fine if they end up selling themselves to a third party.

Microsoft may yet get their hands on Yahoo, or at least the parts of Yahoo they want, simply by default as shareholders continue their revolt and/or the government puts a stop to the madness. Or not, and Google gets a long term pass to transition Yahoo's remaining advertisers over to their own platform plus a hefty termination fee if Yahoo gets sold off at some point.

Either way, Google wins. Or Microsoft wins.

But Yahoo has lost.