As the wind-up act for the Financial Analyst Day at Microsoft today, its CFO, Chris Liddell, took the stage to try to put a shine on weak financial results that the software giant recently reported.

“So, what genetic disposition do you need to be a CFO? Essentially, you need to be miserable, you need to be the sort of person who takes drinks away from people at the end of a party,” said Liddell. “So, you know, my colleagues who have been giving you drinks all day, have told me to come out here and take most of them away from you.”

This was an unusually charming opening for typically dull CFOs, made even more so since it was delivered in Liddell’s jaunty New Zealand-Hobbit accent, which turns words like “share” into “sheeaar” and “schedule” into “shed-you-all.”

But no matter how cute the delivery, Liddell could not make the recent financial performance at Microsoft (MSFT) look adorable. The company missed revenue estimates by $1 billion in its most recent quarter.

Said Liddell: “And, not surprisingly, from a revenue point of view, it turned out to be a fundamentally different year than we thought it would. So, when I stood up here last year and said we thought our revenue would grow, it actually shrunk by three percent.”

Liddell dubbed the new economic situation the “new normal,” which sounds like it could be the topic on an “Oprah” show.

Still, Liddell, who has been a grumpier CFO than most during this econalypse–I once dubbed him “Glum Chris at the Recessiondome”–was more positive going forward.

“I can’t say this is good that we’re still down relative to where we were a year ago,” he said. “But, on a relative basis, it was a reasonable year from a shareholder value point of view, given the context of the environment that we had.”

Liddell said Microsoft was now operating in a “reset” mode, a term often used by Microsoft CEO Steve Ballmer.

“The economic path that we are all going to face, regardless of any industry, is going to be relatively subdued compared to what we’ve been through,” he said. “So, those companies that are going to drive superior shareholder value in the new environment are not only going to be the ones that mapping the reset in a very good way, but are going to manage the new normal in a particular way as well.”

That means having cash, controlling costs, pushing for innovation and market share, said Liddell.

He forgot to add judicious coupon-clipping!

After he was done, Liddell was joined onstage for an executive Q&A by Ballmer, COO Kevin Turner, Online Services President Qi Lu and, finally, Chief Software Architect Ray Ozzie, who was apparently in the special guest star role for this year’s meeting.

It was emceed by investor relations guy Bill Koefoed, who I must admit, is not even close to as dull as he is when reading all that legal mumbo-jumbo at quarterly earnings call.

(Even to my assistant Ed–to whom Koefoed’s voice is like Valium, since I listen to those calls on a speakerphone at All Things Digital HQ, and it puts him into a deep stupor.)

There were various questions for the execs–all men, by the way, although who’s counting? Well, okay, me!–including:

* Whether Microsoft might make more acquisitions.

“We don’t acquire as a strategy,” said Ballmer flatly.

* Its relationship with Yahoo (YHOO) going forward and if it might lead to even closer ties.

“If there was an implicit question are we interested in a full acquisition, the answer is no. Yahoo is happy to be independent, we’re happy to be independent, we’re delighted with search partnership,” said Ballmer even more flatly.

There were also a whole bunch of financial questions, most on the far side of wonky. Ozzie spoke only briefly about big computing ideas, which is his job at the software giant.

And then it was over and he and the other big execs headed for cocktails with those gathered.

And, last I saw, Liddell was not wrestling any drinks from the attendees. Not yet, at least.

While Microsoft COO Kevin Turner did a kind of modified cheerleading act at Microsoft’s annual Financial Analyst Meeting, Entertainment and Devices President Robbie Bach played the teenage boy and Chief Research and Strategy Officer Craig Mundie the voice from the future.

During his presentation at the event at the Microsoft (MSFT) HQ in Redmond, Wash.–a series of presentations for Wall Street analysts and the media–Bach showed off the Xbox’s new Project Natal motion-sensing technology, which lets you play games and more without a controller.

Bach spazzed out nicely playing a game called Ricochet, with a storm of virtual red balls coming at him, although I was slightly worried the exertion might cause him to collapse on stage.

Turner was on before Bach, pretty much doing cleanup after CEO Steve Ballmer’s presentation, talking up all of Microsoft’s various businesses, while talking down its competitors’.

Said Turner, whose mantra was building market share for Microsoft: “Strong innovation, strong innovation investment, as well as strong operational excellence that we’re driving to compete and grow our market share.”

Strong, got it? (Frankly, I know companies always put their best foot forward at events like this–but after Ballmer’s own He-Man speech, BoomTown is a little worried that Scary Microsoft could be making a comeback, after a few post-antitrust years of Kinder-Gentler Microsoft.)

Bach, given his job, was a lot more entertaining and had more to show off, although he could not be as positive about the software giant’s mobile experience, given the juggernaut of the iPhone from Apple (AAPL).

“First of all, in Windows Mobile, as Steve pointed out, we had a challenging year from a share perspective,” said Bach. “Much tougher competition in the U.S. and certainly there is plenty of competition in this space.”

No kidding!

Natal is, of course, the pretty one for Bach’s division.

“It is about technology innovation and experience innovation. I think it will lead to a bigger and better business as well,” said Bach. “It is certainly an opportunity for us to build something new.”

Mundie also showed a lot of new futuristic stuff, which borrowed from the Natal technology, including a demo of a gesture-rich “office of the future” experience.

Said Mundie: “But as far as Microsoft, one of the greatest opportunities going forward is to realize there will be a successor to the desktop. It is the room. It is the fixed computing environment. The question is what can you do with computing when you have a much more robust man-machine interaction model and you don’t have to fold it in half and move it and run it on a battery.”

In the midst of it, though, he chit-chatted with a very scary “digital assistant” named DAG (I think it must stand for Digital Assistant Golem) on the screen, whose voice freaked me out in the exact way HAL from “2001: A Space Odyssey” always does.

After helping Mundie with a bunch of stuff, I am guessing DAG went off into the computer to work on a secret plan to kill off the human race.

Well, it was nice being here for this long on our little blue planet, Earth!

So, while we wait for DAG to destroy us, here’s the video demoing Natal that Bach showed to the audience, which is not new, but still pretty cool:

BoomTown is here at Microsoft HQ in Redmond, Wash., where a panoply of top execs from the company is giving a full day of presentations to a roomful of Wall Street analysts and media folks at its annual Financial Analyst Meeting.

First up, as you might imagine, is CEO Steve Ballmer, who is as bouncy and braggy as I have ever seen him, probably because he is fresh from getting his mitts on a long-sought-after prize–the search business of Yahoo (YHOO).

But, while the media and investors think Microsoft (MSFT) made out well in the online search and advertising deal, the opinion about Yahoo’s side of the deal has been not so positive.

Actually, tragic, with Yahoo shares down another five percent today already, after plummeting 12 percent yesterday. Look out below!

Thus, Ballmer to the rescue!

“This is the one that stuns me, that people haven’t figured it out,” said Ballmer, pointing out that Yahoo cut costs and gets to keep revenue. “It’s sort of, like, unbelievable.”

Believe it, Steve, especially since everyone thinks Microsoft pulled a fast one on Yahoo.

Otherwise, Ballmer gave a relatively upbeat speech about the software giant, even after a tough year for Microsoft, due to the weak economy and the fall-off of sales of personal computers.

Ballmer had computers on the brain, especially those of competitors, like Apple (AAPL), which was popular with the audience.

“We have low share, by the way, in the investor audience. I can see the Apple logos versus the PC logos,” he joked. “Our share is lower in this audience than the average audience. Don’t hide it. I’ve already counted them. I have been doing that since we started talking.”

I wonder if Big Brother, oops, Ballmer, also took note of my iPhone and browser open to Google (GOOG) search.

As is part of the reliable Ballmer act, along with Apple-bashing, there was Google-bashing, Linux-bashing and general Anybody-But-Microsoft-Bashing.

But, bullies, be warned! There will be no more Yahoo-bashing from you or Microsoft–well, on the record, at least!–or you’ll apparently have to answer to He-Man Ballmer.

The fun never stops at Microsoft, it seems.

Well, not fun–more like a long march of khaki-clad Softies.

They will be on display bright and early this morning at the company’s annual Financial Analyst Meeting, a cavalcade of top execs at the tech giant blabbing away.

BoomTown will be there covering it in person, natch!

The Microsoft management smorgasbord includes:

CEO Steve Ballmer, COO Kevin Turner, Entertainment and Devices President Robbie Bach, Online Services President Qi Lu, Microsoft Business President Stephen Elop, Servers and Tools President Bob Muglia, Chief Research and Strategy Officer Craig Mundie, Chief Software Architect Ray Ozzie and CFO Chris Liddell.

I am betting that most of the focus at the gathering, which is being held at the worldwide HQ of Microsoft (MSFT) in Redmond, Wash., will likely be on two major events over the last week–its billion-dollar revenue miss in its fourth quarter and its just-born search and online advertising deal with Yahoo (YHOO).

The former, of course, was bad news for Microsoft, as it continues to signal weakness in its core operating system software and server businesses, due to lower demand for personal computers in the midst of the econalypse.

The latter was good news, of course, since Microsoft seemed to score a coup in nabbing the search technology business from Yahoo with no big upfront payments.

I have a lot of questions about both these issues, as will the crowd of reporters and Wall Street sharpies at the FAM, which is what they call the meeting here.

There could even be be plenty of answers, especially given that the entire leadership of Microsoft will be there.

Here is a link to a live Webcast of the FAM event, if you want to join the party too.

With upward of two-thirds of the search market, depending on what survey you use, one would not imagine that Google would worry too much about any kind of hookup of Microsoft and Yahoo.

Think again.

While several sources at Google (GOOG), even off the record, have professed to me that they are not that worried about any search and online advertising deal the pair have finally struck, others admit that a more robust rival will force the company to compete and innovate more aggressively.

“We take nothing for granted, because anyone can make a comeback,” said one person at Google, who points to Microsoft’s laudable efforts with its Bing search service. “Especially with Microsoft’s deep pockets and Yahoo’s talent in the advertising market.”

Sources close to the situation said Google will likely try to keep a low profile at first in opposing the deal announced today, positing that regulators have the same opinion about fewer competitors in the market as they did when opposing a similar Google-Yahoo search deal last year.

“Is Google siccing the dogs on this deal?” asked one person familiar with Google’s thinking. “Or will it wait for regulators to cast scrutiny on a deal that drops the number of competitors from three to two?”

Still, having three in the market has not been enough to lift the share of Yahoo or Microsoft very much in comparison to Google over the last several years.

According to a comScore (SCOR) report for June, for example, even combined, Microsoft (MSFT) and Yahoo (YHOO) have a share that is less than half that enjoyed by Google.

Microsoft accounted for 8.4 percent of the search market in the month, with Yahoo clocking in at 20 percent. Google grabbed the lion’s share at 65 percent.

And that dominance means a financial windfall–as volume means more queries means better search ads means better relevance in an ever-virtuous and very lucrative cycle.

It is a cycle Google would like to keep intact, so much so that it made what turned out to be a very risky move to block Microsoft when it was trying to take over Yahoo last year.

Regulators ended up raising federal eyebrows about the proposed Yahoo-Google search deal, which was less sweeping than the Micosoft-Yahoo one announced today.

Google dumped Yahoo in the end–although not before the company found itself front and center on antitrust radar screens.

And there it has remained, with Christine Varney, assistant attorney general for the Antitrust Division of the United States Department of Justice, having become Google’s most pointed critic.

She should be, given the Silicon Valley-born Yahoogle idea was an appalling reach by Google, as I wrote last April:

And while it might be a long-cherished dream of Google’s to take over Yahoo search–and also get the chance to return to the scene of the crime, since Google got its first big push from doing Yahoo search, before Yahoo wised up too late–there is simply no way this will be allowed by regulators nor should it.

Still, you have to almost admire the chutzpah of the search giant in making this move, if the sheer and unadulterated arrogance of it wasn’t so distracting.

Because, while Google has almost none of the obvious menacing aggression that characterized Microsoft when it thoroughly dominated tech (although all those beach bikes on its campus inexplicably creep me out a little bit), the company still cannot be allowed to have a monopolistic share of the market.

It is bad for advertisers, it is bad for consumers, it is bad for innovation, no matter how well-intentioned Google is.

And no matter how many flashy moves Google and Yahoo make, it is flat-out wrong for one player to so dominate such an important sector.

Anti-competitiveness would likely be Google’s first arrow in what will surely be an attempt to slow down, if not block, the deal.

And while advertisers are more disposed to have a stronger No. 2 player to counter Google’s growing power, the company might use the opportunity to shave the sharp edges of its ever-scarier reputation.

In a conference call early this morning about their deal, Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer tried to paint a picture of Google as a scary and dominating search giant.

But, as Google will surely offer up, if Microsoft and Yahoo combined is the underdog, it might not look like so much of a bully after all.

Please see this disclosure related to me and Google.

BoomTown was so glad we had this time together with Yahoo (YHOO) CEO Carol Bartz and Microsoft (MSFT) CEO Steve Ballmer, just to have a laugh or sing a song about a major Web search and advertising deal.

I liveblogged the conference call, which I updated as it happened.

Did Ballmer scream and jump up and down? Did Carol say something naughty?

Or as the companies said:

SUNNYVALE, Calif. & REDMOND, Wash., Jul 29, 2009 (BUSINESS WIRE)–Yahoo! Inc. and Microsoft will host a conference call for accredited media and financial and industry analysts at 8:30 a.m. ET/5:30 a.m. PT today, July 29, 2009, to discuss the search agreement the companies recently announced. In addition, b-roll footage will be available. The satellite feed of b-roll footage will contain broadcast footage of remarks from Yahoo! CEO Carol Bartz and Microsoft CEO Steve Ballmer, as well as corporate Yahoo! and Microsoft b-roll footage.

B-roll? More like, were Bartz and Ballmer on a roll?

To find out, read on!

5:28 am PDT: It was EARLY on the West Coast and we were being forced at first to listen to really sleepy music like you might hear in a dentist’s office.

Zzzzzzzzz…

5:34 am PDT: Memo Impresario Eric Brown was late! But, as soon as he gets on, the new Yahoo PR head began with an enthusiastic hello about the deal.

Bartz was up first, followed by Ballmer. They were clearly together in the same place, likely in Silicon Valley at some bunker.

“This is a great day for Yahoo,” she said. “It’s a game-changer and I am glad to finally be able to talk to you about it.”

Her patter was clearly scripted, but Bartz was pretty jaunty in her delivery.

And sassy enough to make the first of many dings to former Yahoo savior Google (GOOG)–not by name, but as either “the market leader” or “the competitor.”

Why not just go right to calling the search giant this deal is aimed at battling what Bartz really meant: The Borg.

Bartz stressed that this deal only covers search and the search ad business and not, say, display advertising.

And, she added, while Microsoft’s AdCenter technology will power the money-making, “search will continue to be an integral part of the Yahoo consumer experience.”

Boiling it down, Bartz said: “What this deal is really about for everyone is scale.”

Cue the next Google dig: “The combination of Microsoft and Yahoo search puts the choice back into the hands of consumers, increasingly concerned about the influence of a single player.”

Single player=Darth Vader.

5:40 am PDT: Ballmer was next. “I am so delighted to see [the deal] come to fruition,” he said.

He does not say much more except that he hoped it would “flourish and come to life over the many years.”

Ballmer sounded like someone speaking at a ribbon cutting of a copy store at the mall.

The livelier Bartz came back on, discussing the terms, hewing pretty much to what was already in the press release.

Microsoft’s AdCenter as technology. Integration. 10 years. No display deal. Separate user experience.

Now to the bucks, as Bartz noted, they add $500 million to Yahoo’s operating income, save $200 million in capital expenditures and improve annual operating cash flow by $275 million.

“At its full implementation,” she added. There is always a catch!

Bartz said Yahoo would use the money to invest in its other properties, although she was not specific.

Then, it was onto regulatory issues and getting this party started.

Bartz put on the brakes. “This deal will not happen overnight,” she said.

Actually, not even close. She predicted a closing in early 2010 and it being rolled out over the following three to six months.

Finally, Bartz thanked the tireless teams who did the deal. “With a lot of help from Steve and I,” she said and then quipped, “not always so.”

She and Ballmer were now sounding like a hip mom and dad.

5:45 am PDT: Question time!

The first one was about why the pair did not do a display deal and also how they were going to bridge the huge gap in how much each made per search compared to each other and Google.

Bartz said that the point was to keep the deal idiot-proof. “Frankly, we wanted it as straightforward and simple as possible,” she said.

Ballmer concurred: “We are taking a big bite here.”

As to the earnings gap in search, he said, “The deal in and of itself will let us close gap with the market leader.”

Ballmer tried not to say the word “Google,” but stumbled and did anyway.

The next question was about Bartz’s shift from her “boatloads of cash” quote–which she said, in an interview with me at the seventh D: All Things Digital conference in late May, was a must for a deal with Microsoft–to her new “boatloads of value.”

Simple, she said, trying to gloss it over–Yahoo did not need a big cash payment up front (and it did not get it either).

“As far as we are concerned, the boatload of cash is us preserving our revenue line,” said Bartz.

The next question was about what Microsoft gets out of this deal.

“We clearly see an upside as execution really builds,” said Ballmer.

After more money questions, there is finally one on regulator issues.

Back to Google-bashing from Ballmer.

“I suspect the competitor who may not like more competition is Google,” he said.

Microsoft General Counsel Brad Smith then jumped in and talked about working together and filings in D.C. and making the case.

He said he “looks forward to the debate,” which is just what a lawyer would say.

5:58 am PDT: Finally, the layoff question.

Bartz is clear here. Some Yahoo search employees will be dragooned over to Microsoft, some will move to other parts of Yahoo and some will be let go.

“Unfortunately, there are some redundancies,” said Bartz.

More financial questions, one on the mobile search market, one on innovation, one on scale and one on advertisers.

“Advertisers, especially smaller ones, want to make sure there is enough meaningful market for them and they don’t want to learn three platforms,” said Bartz. “They know how to enter into the Google system.”

She said “Google system” like she was talking about a gulag.

Meanwhile, Ballmer talked about how good it was to now be No. 2. Really, he did, since he was a distant No. 3 before this deal.

6:11 am PDT: Some technology question. Ballmer noted that the deal was not a “rip and replace” of Yahoo’s search for Microsoft. It will be an “integration.”

Next was a question about how this deal measured up to last year’s more money-laden offer by Microsoft.

Bartz said she didn’t just want an upfront payment, but a “true partnership,” with control over the Yahoo user interface and “real skin in the game.”

Ballmer called last year’s deal more investor-focused than operational. “The deal was different for Microsoft, not better,” he said, leaving out the cheaper part.

Finally, I get called on, and ask about who will lead the integration and how it will get done, so as not to create a huge distraction.

Bartz said it would be a “smooth transition…not that different from when Yahoo went from Overture to Panama.”

I did not have the heart to tell her that the transition of the Yahoo ad platform was anything but smooth and one of the reasons Yahoo got into the trouble it has gotten in.

Ballmer noted that the leadership that put together the deal is the leadership of the companies in the digital arena.

I also asked how the deal finally came together, especially after such historical rancor.

“It was like a snowball down a hill,” said Bartz.

But it was also a complex ball of ice, she added, noting “it was not a two-page term sheet.”

More like hundreds of pages. “There was not a high level of abstraction,” said Ballmer.

Finally, finding a kind of married groove–from that time before the random bickering sets in–Bartz noted that “dating is one thing, but having a partnership is another.”

She added: “The good news once we reached a point we believed to be advantageous, [we did a deal]…that’s how partnerships work.”

Well, exactly how it all works out, of course, still remains to be seen.

Finally.

After a decade of competition, several years of push-me-pull-you partnership talks among innumerable execs come and gone and even a hostile takeover that went bad, Yahoo and Microsoft have officially struck a landmark 10-year search and online advertising partnership.

While it is in no way as sweeping as some had expected, the deal marks the most important union of digital companies in recent times.

It gives Yahoo (YHOO) much needed backing–especially financial–and gives Microsoft (MSFT) the most Silicon Valley cred ever.

“In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers,” said the two companies in a joint press release.

That’s not to say it will work out, as a deal like this is all about execution and how well the companies manage the partnership.

But, for now, here’s the official press release:

Microsoft, Yahoo! Change Search Landscape

Global Deal Creates Better Choice for Consumers and Advertisers

SUNNYVALE, Calif. & REDMOND, Wash., Jul 29, 2009 (BUSINESS WIRE)–Yahoo! and Microsoft announced an agreement that will improve the Web search experience for users and advertisers, and deliver sustained innovation to the industry. In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.

For Web users and advertisers, this deal will accelerate the pace and breadth of innovation by combining both companies’ complementary strengths and search platforms into a market competitor with the scale to fuel sustained development in search and search advertising. Users will find what they care about faster and with more personal relevance. Microsoft’s competitive search platforms will lead to more value for advertisers, better results for Web publishers, and increased innovation and efficiency across the Internet.

Under this agreement, Yahoo! will focus on its core business of providing consumers with great experiences with the world’s favorite online destinations and Web products.

“This agreement comes with boatloads of value for Yahoo!, our users, and the industry, and I believe it establishes the foundation for a new era of Internet innovation and development,” said Yahoo! Chief Executive Officer Carol Bartz. “Users will continue to experience search as a vital part of their Yahoo! experiences and will enjoy increased innovation thanks to the scale and resources this deal provides. Advertisers will also benefit from scale and enjoy greater ease of use and efficiencies working with a single platform and sales team for premium advertisers. Finally, this deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences.”

Providing a viable alternative to advertisers, this deal will combine Yahoo! and Microsoft search marketplaces so that advertisers no longer have to rely on one company that dominates more than 70 percent of all search. With the addition of Yahoo!’s search volume, Microsoft will achieve the size and scale required to unleash competition and innovation in the market, for consumers as well as advertisers.

Microsoft Chief Executive Officer Steve Ballmer said the agreement will provide Microsoft’s search engine, Bing, the scale necessary to more effectively compete, attracting more users and advertisers, which in turn will lead to more relevant ads and search results.

“Through this agreement with Yahoo!, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company,” said Ballmer. “Success in search requires both innovation and scale. With our new Bing search platform, we’ve created breakthrough innovation and features. This agreement with Yahoo! will provide the scale we need to deliver even more rapid advances in relevancy and usefulness. Microsoft and Yahoo! know there’s so much more that search could be. This agreement gives us the scale and resources to create the future of search.”

“This deal fits the long-term strategic direction of Yahoo! to remain the world’s leading online media company and Carol Bartz has the full and unanimous support of the Yahoo! Board behind this deal,” said Roy Bostock, chairman, Yahoo! Inc. “This is a significant opportunity for us. Microsoft is an industry innovator in search and it is a great opportunity for us to focus our investments in other areas critical to our future.”

The key terms of the agreement are as follows:

The term of the agreement is 10 years; Microsoft will acquire an exclusive 10 year license to Yahoo!’s core search technologies, and Microsoft will have the ability to integrate Yahoo! search technologies into its existing Web search platforms; Microsoft’s Bing will be the exclusive algorithmic search and paid search platform for Yahoo! sites. Yahoo! will continue to use its technology and data in other areas of its business such as enhancing display advertising technology; Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process; Each company will maintain its own separate display advertising business and sales force; Yahoo! will innovate and “own” the user experience on Yahoo! properties, including the user experience for search, even though it will be powered by Microsoft technology; Microsoft will compensate Yahoo! through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated (O&O) and affiliate sites; Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88 percent of search revenue generated on Yahoo!’s O&O sites during the first five years of the agreement; and Yahoo! will continue to syndicate its existing search affiliate partnerships. Microsoft will guarantee Yahoo!’s O&O revenue per search (RPS) in each country for the first 18 months following initial implementation in that country; At full implementation (expected to occur within 24 months following regulatory approval), Yahoo! estimates, based on current levels of revenue and current operating expenses, that this agreement will provide a benefit to annual GAAP operating income of approximately $500 million and capital expenditure savings of approximately $200 million. Yahoo! also estimates that this agreement will provide a benefit to annual operating cash flow of approximately $275 million; and the agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.

The agreement does not cover each company’s Web properties and products, email, instant messaging, display advertising, or any other aspect of the companies’ businesses. In those areas, the companies will continue to compete vigorously.

The transaction will be subject to regulatory review. The agreement entered into today anticipates that the parties will enter into more detailed definitive agreements prior to closing. Microsoft and Yahoo! expect the agreement to be closely reviewed by the industry and government regulators, and welcome questions. The companies are hopeful that closing can occur in early 2010.

The companies have established a website at http://www.choicevalueinnovation.com to provide consumers, advertisers and publishers with additional information about the benefits of the agreement.