Yahoo 2011 Annual Report Download - page 18

Transition, implementation and execution risks associated with our Search Agreement with Microsoft may
adversely affect our business and operating results.
Under our Search Agreement with Microsoft, Microsoft is the exclusive algorithmic and paid search services
provider on Yahoo! Properties and non-exclusive provider of such services on Affiliate sites for the transitioned
markets. Revenue under the Search Agreement represented more than 10 percent of our revenue during 2011.
The parties commenced implementation of the Search Agreement on February 23, 2010. The transition process is
complex and requires the expenditure of significant time and resources by us. We have completed the transition
of our algorithmic search platform to the Microsoft platform in all markets, and have completed transition of paid
search in several markets, including the U.S., Canada, and India. The market-by-market transition of our paid
search platform to Microsoft’s platform and the migration of paid search advertisers and publishers to
Microsoft’s platform are expected to continue through the first half of 2013. Delays or difficulties in, or
disruptions and inconveniences caused by, the transition process could result in the loss of advertisers,
publishers, Affiliates, and employees, as well as delays in recognizing or reductions in the anticipated benefits of
the transaction, any of which could negatively impact our business and operating results.
If Microsoft fails to perform as required under the Search Agreement for any reason or suffers service level
interruptions or other performance issues (including if Microsoft is unable to effectively monetize search queries
in markets where paid search has transitioned under the Search Agreement), or if advertisers, Affiliates, or users
are less satisfied than expected with the services provided or results obtained after transition or during the period
prior to the transition of search to Microsoft in their respective markets, we may not realize the anticipated
benefits of the Search Agreement, we may lose advertisers, publishers and Affiliates, we may lose exclusivity
with certain publishers, and our search revenue or our profitability could decline. Under the Search Agreement,
for each market, Microsoft generally guarantees Yahoo!’s revenue per search (“RPS Guarantee”) on Yahoo!
Properties for 18 months after the transition of paid search services to Microsoft’s platform in that market. In
2011, Microsoft agreed to extend the RPS Guarantee in the U.S. and Canada through March 2013. To the extent
the RPS Guarantee payments we receive do not fully offset any shortfall relating to revenue per search in
transitioned markets or if our revenue per search upon expiration of the RPS Guarantee payments is lower than
the guarantee levels, our search revenue, or our profitability could decline. Notwithstanding any RPS Guarantee
payments that we may receive, our competitors may increase revenue, profitability and market share at a higher
rate than us.
If we are unable to provide innovative search experiences and other products and services that generate
significant traffic to our Websites, our business could be harmed, causing our revenue to decline.
Internet search is characterized by rapidly changing technology, significant competition, evolving industry
standards, and frequent product and service enhancements. We must continually invest in improving our users’
search experience—presenting users with a search experience that is responsive to their needs and preferences—
in order to continue to attract, retain, and expand our user base and paid search advertiser base.
We currently deploy our own technology to provide algorithmic Web search and paid search results on our
network, except in markets where we have transitioned those services to Microsoft’s platform. Even after we
complete the transition to Microsoft’s platform in all markets, we will need to continue to invest and innovate to
improve our users’ search experience.
We also generate revenue through other online products and services, such as Yahoo! Mail. If we are unable to
provide innovative search and other products and services which generate significant traffic to our Websites, our
business could be harmed, causing our revenue to decline.
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