Microsoft Corp's chief executive tried to persuade skeptical investors on Thursday that its 10-year Web search partnership with Yahoo Inc is good for both companies.
Shares of Yahoo slumped 12 percent after the long-expected deal was announced on Wednesday, and fell another 4 percent on Thursday. Microsoft shares rose slightly, puzzling CEO Steve Ballmer.
Nobody gets it, Ballmer told a meeting for financial analysts at Microsoft's headquarters near Seattle. It's a little bit complicated.
Under the deal, aimed at creating a stronger competitor to Google Inc, Microsoft's new Bing search engine will power queries on Yahoo's sites. In return, Microsoft will pay Yahoo 88 percent of revenue from advertisements generated from these sites.
In theory, that means Microsoft gets more traffic to refine its search technology and build up its ad base, while Yahoo gets revenue from search ads without the expense of managing its own search engine.
The deal appears to end a long saga between the companies, after Yahoo rebuffed Microsoft's $47.5 billion takeover bid last year.
Nothing got sold yesterday and nothing got bought yesterday, Ballmer told the meeting, in an attempt to explain the deal.
It's a win-win deal from my perspective, he said, adding that he was surprised by the steep fall in Yahoo's shares.
Yahoo's 88 percent share of search ad revenue is a big number, said Ballmer, considering the company will have a zero percent cost of obtaining that revenue.
For Microsoft, he said the deal means it gets more Internet traffic, enabling it to refine its search technology, which should lead to more interest from ad buyers and hence better prices for its ads.
Yahoo shares were down 4 percent at $14.53 in afternoon trading.
(Reporting by Bill Rigby; Editing by Tiffany Wu)