Yahoo just renewed its search partnership with Microsoft — with huge modifications.

The companies re-upped the partnership. Some of the basic fundamentals of the partnership remain in tact. Yahoo is using Bing ads for its desktop searches. Microsoft is providing the algorithm for Yahoo's desktop search.

There are two major changes.

Yahoo was responsible for the sales relationships for Bing search ads under the partnerships previously. All of those sales relationships are going to come under Microsoft in the coming months.

The new deal now only requires Yahoo to pull a majority of its traffic from the Bing ads marketplace. Just 51%, rather than the 100% it was required to pull before. That means the other 49% of Yahoo's search traffic could be monetized by Yahoo's own ad units or by another search provider, like Google.



The are some HUGE ramifications:

Yahoo has a lot of flexibility with the 49% of its search traffic that doesn't have to be monetized by Bing. It could sell that traffic to Google, for example. That would immediately boost Yahoo's revenues. One reason that may not happen is that, back in 2009, Yahoo tried to do a search ads deal with Google, and the Department of Justice scared Google out of it. Also, Mayer talks a lot about Yahoo's own ads product, Gemini.

Yahoo will probably be able to cut costs, shrinking its search ads sales force.

Microsoft will have to hire a search ads force over the next couple months.

Yahoo CEO Marissa Mayer wrote a blog post about the deal:

Today, I’m excited to announce a renewed search alliance with Microsoft. The agreement opens up significant opportunities in our partnership, enabling both partners to improve the search experience, create value for advertisers, and establish ongoing stability for partners.

You can learn more about it here.

We firmly believe that search is still in its infancy – and this partnership marks the next chapter in our exploration of how to make search truly great. I want to thank Satya Nadella and his team for working closely with us over the past few months to rejuvenate our partnership. Search has, and will continue to be, an incredibly important part of Yahoo, and this new partnership represents a major step forward in our renaissance.

Here's a press release on the news:

Today Microsoft (Nasdaq: MSFT) and Yahoo (Nasdaq: YHOO) announced that the companies amended their search partnership to improve the search experience, create value for advertisers and establish ongoing stability for partners. The update reaffirms commitments made by both companies in the original 2009 agreement, while implementing changes to keep the partnership strong and productive, with both companies committed to maximizing the alliance.

“Our global partnership with Yahoo has benefited our shared customers over the past five years and I look forward to building on what we’ve already accomplished together,” said Satya Nadella, CEO, Microsoft Corp. “Our partnership with Yahoo is one example of the diverse partnerships we’ll continue to cultivate in order to have the greatest impact for our customers.”

“Over the past few months, Satya and I have worked closely together to establish a revised search agreement that allows us to enhance our user experience and innovate more in our search business,” said Marissa Mayer. “This renewed agreement opens up significant opportunities in our partnership that I’m very excited to explore.”

The update includes improvements in two core areas. First, Yahoo will now have increased flexibility to enhance the search experience on any platform, since the partnership is non-exclusive for both desktop and mobile. Yahoo will continue to serve Bing ads and search results for a majority of its desktop search traffic.

Second, the update increases agility and sales focus. Microsoft will become the exclusive salesforce for ads delivered by Microsoft’s Bing Ads platform, while Yahoo will continue to be the exclusive salesforce for Yahoo’s Gemini ads platform. Integrating the sales teams with those responsible for engineering will allow both companies to service advertisers more effectively. Microsoft and Yahoo plan to begin to transition managed advertiser sales responsibilities this summer.

The partnership, formed in 2009 by both CEOs’ predecessors, established a transformative relationship between the two companies -- one where Microsoft exclusively provided paid and algorithmic search services on PC to Yahoo. The alliance also designated a revenue sharing agreement where Microsoft pays Yahoo a percentage of Bing Ads revenue delivered from Yahoo searches. This existing underlying economic structure remains unchanged with today's updates.