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Rupert Murdoch is pointing a gun to Google’s head, and Microsoft is helping him pull back the trigger. For the past few weeks, Murdoch and his officers at News Corp. have been very vocal about their distaste for Google and their desire to lead other media companies in a boycott of sorts.

Murdoch keeps threatening to stop letting Google index the WSJ.com and his other media sites, and wants other news sites to join him in this self-imposed silence. The folks at Microsoft’s Bing think this is a great idea. Not only that, but the FT reports that Microsoft is in fact in discussions with News Corp. and other publishers about the possibility of paying them to remove their sites from Google’s search index. This report comes on the heels of a meeting in Europe where Bing dangled the prospect of premium spots in search results to publishers and outright money for search R&D.

Microsoft is not afraid to buy search market share, which is what it’s doing with the Yahoo search deal and even its Cashback program. But with these latest talks, it is literally trying to buy the news, or at least exclusive access to the news.

Bing can’t buy all the news, it can only buy certain brands. If Bing can somehow become the only place you can find news results and working links to the Wall Street Journal and other top papers such as the New York Times, the Washington Post, and the LA Times, for instance, that would be a big reason to switch for a lot of folks. But it’s not clear how much Bing would have to pay the news companies of the world for them to give up all the traffic Google sends them in return for a fraction of that traffic and some cash.

Even Google couldn’t afford to strike such deals. Says Murdoch, of Google, “If they were to pay everybody for everything they took from every newspaper in the world, and every magazine, they wouldn’t have any profits left.”

In order to actually make a dent in Google’s market share, Bing would have to pay such exorbitant sums to so many different news companies that it would be difficult to recoup its investment. Bing certainly get some marketing buzz out of any such move, but that’s about it.

The big problem with a search engine trying to buy market share by buying parts of the news is that information spreads so quickly these days, exclusives last about 30 seconds. That information will end up on a site that is indexed by Google. Or the same news will be broken by someone else on the Web before the WSJ.com even gets to it.

Exclusive indexing goes against the Web’s inherent openness. Companies that try to curtail that openness don’t last long on the Web.

In a long-awaited pairing aimed at taking on Google, Yahoo will handle ad sales while Microsoft gets the real prize: data on who’s doing what online

By Peter Burrows and Daniel Saltman

Ever since Microsoft (MSFT) made its $45 billion bid for Yahoo (YHOO) in early 2008, it was clear the software giant was serious about taking on arch-rival Google (GOOG) in the lucrative Internet search business. And now, after years of talks with Yahoo, it seems Microsoft has achieved its goal. In a 10-year deal announced in the early hours of July 29, Microsoft became the clear No. 2 in a market long dominated by arch-rival Google.

In a deal that presages its departure from a market it helped pioneer, Yahoo will scrap its own efforts to best Google in search and instead rely on Microsoft’s recently debuted Bing search engine. Ads placed next to those search results would be served up not by Yahoo’s ad platform, dubbed Panama, but by a Microsoft technology called AdCenter. Yahoo CEO Carol Bartz “is essentially giving up on search,” says Danny Sullivan, editor of Search Engine Land.

Yahoo salespeople will continue to sell search ads that appear on both Yahoo sites and on Bing, and Microsoft agreed to let Yahoo keep 88% of the revenue on ads that appear on Yahoo sites. But Microsoft will nevertheless reap a reward that’s more valuable in the long run. The data on computer users’ online search and buying habits would ultimately reside on Microsoft’s computers, thereby improving its ability to automatically serve up the most relevant ads. “If Microsoft is running the underlying ad technology, it doesn’t matter who is selling the ads,” Sullivan says. “In the end, Microsoft will hold all the cards.”

He adds that most advertisers place ads by filling out online forms, with no involvement from salespeople. Maintaining control of sales makes the deal “sound rosier for Yahoo than it really is, because in the end Yahoo won’t have the technology needed to compete.”

Insurance for Microsoft and Bing

Microsoft wins in other ways. The deal gives a big boost to Bing. The combined search market share of Yahoo and Microsoft would approach 30%. That’s still far below Google’s 65%, but analysts say it may provide enough of a critical mass at least to stave off further Google advances and help the enlarged search engine gain some ground. At a minimum, the deal doubles as a kind of insurance policy for Microsoft, in case all

of the positive buzz about the Bing search engine doesn’t translate into actual market share. By adding Yahoo’s 20% market share, Bing assures its place as the only search engine provider other than Google with size that really matters.

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So what’s in it for Bartz? For starters, Yahoo will slice $200 million in technology development costs, while continuing to bring in or even grow its search ad revenue. That’s because its salespeople will sell not only ads running on Yahoo sites, but also on Bing. Once it’s fully implemented, about two years after regulators sign off, the deal is expected to add an annual $500 million in operating income for Yahoo. The recently appointed CEO also buys time to hone Yahoo’s strategy and improve other moneymakers, such as placing banner-style display ads that appear on Yahoo’s highly trafficked portal and e-mail pages. And by continuing to sell search ads, she maintains relationships with key advertisers rather than let Microsoft walk away with them. “Yahoo doesn’t want to look like they’ve sold off their crown jewel for short-term gain,” Sullivan says. “This creates the illusion that they have more control of the situation than they probably do.”

It’s an illusion that will likely work with Yahoo’s long-suffering shareholders. Indeed, the deal will probably be welcomed by investors in both companies, since it lets each play to its respective strengths. Yahoo is most successful as a media company—and that includes selling advertising.

Microsoft, on the other hand, is a technology powerhouse, with vast software development capabilities and the cash to build the billion-dollar data centers needed to run search engines and ad platforms. The roles represent a stark reversal from half a decade ago, when Microsoft used both Yahoo’s search technology and its search-ad system. “It’s good for both of the companies,” says Sandeep Aggarwal, an analyst with Collins Stewart (CLST.L).

An Antitrust O.K. Is Needed

The arrangement will also have to get a nod from antitrust officials. It probably will, given both companies’ relatively small market share next to Google’s, and advertisers generally are likely to be in favor of the deal since it bolsters a competitor to the market leader. But Google no doubt will raise objections, which could at least slow down the approval of the deal.

Moreover, the complexity of the deal means it will take the two companies longer to integrate operations than if Yahoo simply outsourced search and search ads to Microsoft, as Microsoft originally proposed. “It’s certainly a deal with a bunch of moving pieces,” says Tim Cadogan, CEO of the online ad technology and services firm OpenX and a former Yahoo ad sales and search executive.

But if and when those pieces fall into place, it will become abundantly clear which party gained the upper hand in the arrangement, and which one has a fighting chance against Google.