Yahoo 2012 Annual Report Download - page 28

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. Implementation of our Search Agreement with Microsoft commenced on February 23, 2010. 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. We are continuing to work with Microsoft on
transitioning paid search in the remaining markets. 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 2013, and possibly into 2014. The transition process is complex and requires the
expenditure of significant time and resources by us. Delays, difficulties, disruptions or inconveniences resulting
from 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.
Under the Search Agreement, 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 a
particular market. In the fourth quarter of 2011, Microsoft agreed to extend the RPS Guarantee in the U.S. and
Canada through March 2013. The RPS Guarantee is calculated based on the difference in revenue per search
between the pre-transition and post-transition periods and certain other factors. To date, there has been a gap in
revenue per search between pre-transition and post-transition periods and Microsoft has been making payments
under the RPS Guarantee to compensate for the difference. To the extent the RPS Guarantee payments we
receive do not fully offset any shortfall relating to revenue per search in transitioned markets or the RPS
Guarantee in transitioned markets expires before the gap in revenue per search is closed, our search revenue and
profitability would decline. If the RPS Guarantee in the U.S. and Canada is not renewed prior to its expiration on
March 31, 2013, we currently anticipate that our revenue, cash flows and income will be negatively impacted.
Notwithstanding any RPS Guarantee payments that we may receive, our competitors may increase revenue,
profitability, and market share at a higher rate than us.
More people are using devices other than a PC to access the Internet and are accessing new platforms to make
search queries, and versions of our services developed for these devices might not gain widespread adoption by
the devices’ users, manufacturers, or distributors or might fail to function as intended on some devices.
The number of people who access the Internet through devices other than a PC, including mobile telephones,
smartphones, personal digital assistants, handheld computers such as tablets and netbooks, video game consoles,
televisions, and set-top box devices has increased dramatically, and the trend is likely to continue. Our services
were originally designed for rich, graphical environments such as those available on PCs. Limitations on the
memory, resolution, functionality and display associated with many alternative devices may make the use of our
products and services through such devices more difficult and versions of our products and services developed
for those devices may not be compelling to users, manufacturers and distributors of alternative devices.
Similarly, the licenses we have negotiated to present third-party content to PC users may not extend to users of
alternative devices. In those cases, we may need to enter into new or amended agreements with the content
providers in order to present a similar user-experience on the new devices. The content providers may not be
willing to enter into such new or amended agreements on reasonable terms or at all. In addition, search queries
are increasingly being undertaken via applications tailored to particular devices or social media platforms, which
could affect our share of the search market over time.
As new devices and platforms are introduced, it is difficult to predict the problems we may encounter in adapting
our services and developing creative new products and services. We expect to continue to devote significant
resources to the creation, support, and maintenance of mobile products and services. If we are unable to
successfully innovate new forms of Internet advertising for alternative devices, to attract and retain a substantial
number of alternative device manufacturers, distributors, content providers, and users to our services, to develop
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