Microsoft and Yahoo! have been given permission to embark on a search engine deal announced seven months ago. European Competition law regulators have said the deal will not damage the European search engine market.
Microsoft will take over the operation of Yahoo!'s search engine business and keep 12% of search revenues under the agreement, while Yahoo! will receive the other 88% of earnings and offload many of the costs of operating a search system.
"The European Commission has approved under the EU Merger Regulation the proposed acquisition of the internet search and search advertising businesses of Yahoo! Inc. by Microsoft," said a statement by the European Commission. "The Commission concluded that the concentration would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it."
The Commission said that the fact that Yahoo! and Microsoft's Bing search engine lag so far behind Google in the search market in Europe worked in the deal's favour.
"In the EEA, Microsoft's and Yahoo's activities in internet search and online search advertising are very limited with combined market shares generally below 10%. Google, by contrast, generally enjoys market shares above 90%," it said.
"The Commission also examined the potential impact of the merger on the different market players, namely internet search users, advertisers, online publishers and distributors of search technology," said the Commission. "The Commission's first phase market investigation has shown that not only market participants do not expect the transaction to have any negative effects on competition or on their business but they also expect it to increase competition in internet search and search advertising by allowing Microsoft to become a stronger competitor to Google."
In a joint statement Microsoft and Yahoo! said that the deal had also received competition law clearance from the US Department of Justice.
“I believe that together, Microsoft and Yahoo! will promote more choice, better value and greater innovation to our customers as well as to advertisers and publishers," said Microsoft chief executive Steve Ballmer.
“This breakthrough search alliance means Yahoo! can focus even more on our own innovative search experience,” said Yahoo! chief executive Carol Bartz. “Yahoo! gets to do what we do best: combine our science and technology with compelling content to build personally relevant online experiences for our users and customers.”
The deal may not take effect in the European Union until 2012. The companies said they hoped to make the search technology transition in the US by the end of this year, with advertisers moved over to the new system in early 2011. They said it could be 2012 before advertisers outside the US are moved to the new system.
Microsoft has said that it hopes that the access the deal will give to more users of Yahoo!'s search engine technology will help to improve the usefulness of its own search system, which was rebranded as Bing last year.