Yahoo-Microsoft deal is bold step for Bartz

SAN FRANCISCO -- Yahoo's yhoo 10-year deal with Microsoft msft to battle Google goog for online search customers and ad sales is the boldest initiative Carol Bartz has made since she became Yahoo's CEO in January.

But in a sign of the daunting challenge she faces as she tries to revive the troubled Internet power, even her vow that the alliance would deliver "boatloads of value for Yahoo" left many investors stony faced.

Yahoo shares fell 12% on Wednesday to $15.14 as Microsoft shares rose 1%, to $23.80.

Some had hoped for cash or an asset sale to Microsoft.

"Investors were disappointed there was no upfront payment," says Karsten Weide, a tech analyst at market researcher IDC.

Others seemed to have been scared by the prospect of being tied to Microsoft, whose efforts to take on Google "haven't moved the needle much," says Charles King, an analyst at Pund-IT.

But Bartz, in a phone interview, says she takes it all in stride.

"I'm not a CEO who believes in short-term things," she says. "This will play out well in the long run."

Yahoo estimates that the pact with Microsoft, which the companies hope to close next year, will boost its operating profit by $500 million a year. It also could save about $275 million in capital expenditures now that it can use Microsoft's search technology instead of continuing to develop its own.

Wall Street's initial reaction to the deal also follows weeks during which Yahoo shares climbed as news reports cited unnamed sources who said that an agreement was near. Some short-term investors may have cashed out to score a quick profit.

Bartz says, though, that, "It's very possible that I'm taking it on the chin because we haven't explained the deal well."

In the end, she wants actions to speak louder than words. Prior to the Microsoft deal, she rocked the Internet pioneer by reshuffling top management, redesigning Yahoo's home page and reducing 700 jobs — 5% of its workforce.

Yahoo needed tough love after years of internal bickering about its structure and business mix.

The recession and Google's relentless growth made a bad situation worse. Last week, Yahoo said its revenue from sales of search ads fell 15% in the second quarter vs. the same period last year.

And execution has never exactly been a strong suit.

"To realize the opportunity (with Microsoft), Yahoo actually has to do something," says Jonathan Yarmis, an independent tech analyst.

But the often tart-tongued CEO is beginning to change that view.

"Bartz is thinking in longer terms than many IT industry players are used to," analyst King says.

By aligning forces, Microsoft and Yahoo hope to take on Google?s dominance in search and the ad revenue that goes with it:

Google has 62.8% of the U.S. search market and 68.6% of the worldwide search market, says researcher ComScore.

Yahoo has 17.2% of the U.S. search market and 9.0% of the worldwide search market.

Microsoft has 7.4% of the U.S. search market and 2.7% of the worldwide search market.

Contributing: Byron Acohido