U.S. residents continue to shift their search engine use from Yahoo to Microsoft, a trend that started in mid-2009 after Microsoft introduced its new Bing engine and the companies signed a deal to partner in search.
Yahoo's share of U.S. search queries dropped to 17 percent in January, from 17.3 percent in December, while Microsoft's share jumped from 10.7 percent to 11.3 percent, comScore said Thursday.
Back in April, before the launch of Bing and the signing of the search deal, Yahoo had a 20.4 percent share of queries, while Microsoft's was 8.2 percent.
Google remains the dominant player with 65.4 percent of January queries, down 0.3 of a percentage point from December but up from a share of 64.2 percent in April.
Yahoo's search-share slide is bad news for the search advertising revenue of the company, whose deal with Microsoft hasn't been implemented because it hasn't received regulatory clearance yet.
Yahoo officials have said repeatedly that search advertising remains a very important revenue stream for the company. While it intends to outsource the back-end search functions to Microsoft, Yahoo will continue to innovate in its search sites' front-end interface features.
When they announced their search deal in July 2009, the companies stressed the need to combine forces both on the technology and the sales sides in order to present end-users and advertisers with a stronger search alternative to Google.
However, what appears to be happening in the interim before the deal gets implemented is that Bing is hurting Yahoo's search popularity, while Google continues coasting along at the top.
The 10-year search deal calls for Microsoft to not only power Yahoo's search properties but also be in charge of selling search ads. In exchange, Microsoft will share revenue for ads monetized on Yahoo search sites and on those of Yahoo's search network partners.
For example, during the first five years of the agreement, Microsoft will pay an 88 percent commission to Yahoo for search ads monetized on Yahoo sites.
Thus, it's key for Yahoo to retain, and ideally grow, search traffic on its sites, now and when the Microsoft deal kicks in.
Back in July, Yahoo estimated that, when fully implemented, the search deal would boost its annual operating income by about US$500 million, provide capital expenditure savings of about $200 million and increase annual operating cash flow by about $275 million.
It will be interesting to see if these estimates have to be adjusted down when the deal is implemented if Yahoo's search share continues to dip.