Yahoo posted so-so quarterly results this afternoon, with revenue flat at $1.08 billion after adjusting for the cost of acquiring traffic. One reason for the underwhelming performance: Microsoft’s alliance with Yahoo still isn’t living up to either company’s expectations.

Can a former Google executive fix it?

Newly appointed Yahoo CEO Marissa Mayer, the former Google vice president, is in the middle of her first day on the job and didn’t participate in the conference call. Addressing Yahoo’s search alliance with Microsoft, she told the New York Times yesterday, “I actually think the partnership has been a positive for the company.”

Under the deal, Microsoft handles the underlying search and search advertising technology for both companies.

Tim Morse, Yahoo’s chief financial officer, told analysts that on the call that the joint Microsoft-Yahoo search advertising marketplace has been making progress, but he said revenue per search “continues to be below our goal.” As detailed in this past Business Insider story, Microsoft has been having a hard time effectively matching ads to search queries by Yahoo users, hurting revenue from search ads.

The companies “continue to work hard to materially improve performance,” Morse said on the call today.

In the meantime, Microsoft is providing extra payments to Yahoo to help cover the gap. But those only last for another nine months.

Revenue per search is a key measure of success for the agreement. Under the deal, Yahoo has an escape clause if RPS isn’t living up to expectations after five years. The deal was announced in 2009 and finalized in 2010.

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  • Nikesh Parekh

    I guarantee that there is a big deal in the future around MSFT search and online advertising. Given her history with search, I could Marissa wanting to take search back. Alternatively, I could see Microsoft capitulating in online advertising and selling Bing plus Online to Yahoo or FaceBook for a stake in the company. Having Yahoo as a serious bidder for Microsoft’s online business would increase the value paid by FaceBook to compete with Google.

    12+ years is a long time not to be competitive with Google. The economics of display advertising seem to be declining unless you control the marketplace. Microsoft should focus on Saas software for consumers and enterprise and call it a day in search…. unless I am missing something big.

  • guest

    You started off by saying how the deal isn’t living up to either’s expectations, but then you only identified MS’s shortfall in RPS. What about Yahoo’s total failure to grow search share?

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