• by Laurie Sullivan  @lauriesullivan, June 10, 2010

Yahoo and Microsoft plan to transition advertising and search in 59 countries by the second quarter of 2012. Mark Morrissey, Yahoo's senior search alliance for the transition, walked through the Yahoo-Microsoft search agreement during Yahoo's Investors Day Wednesday, trying to convince attendees to expect nothing less than a perfect experience. He outlined the plan and provided a timeline and road map through completion.

Morrissey billed the alliance as increasing consumer engagement to improve the search experience, drive revenue to steadily increase query market share, and provide advertisers with one marketplace to place ads and reap benefits from scale through Microsoft's ad platform, adCenter. Direct sales, account management and daily optimization will shift from Microsoft to Yahoo.

Engineers who have traditionally supported the backend system at Yahoo have moved over to work on the frontend and mobile search applications. Along with the 600 million Yahoo search users worldwide, they will provide feedback and direction to make queries more precise.

Earlier in the day, Yahoo Chief Executive Carol Bartz noted that the combined companies -- Yahoo and Microsoft -- have 30% search market share. Apparently, the problem resides with Yahoo. Only 80 million of the 170 million Yahoo users in the United States use Yahoo Search. They spend time on Yahoo properties, but don't convert into active searchers. The focus this year turns to fixing core quality and user experience, as well as innovating and integrating search across the Yahoo network.

Morrissey has been working with his Microsoft counterpart Greg Nelson, who transitioned from running MSN. A team of Yahoo engineers who worked on Panama now work with Microsoft. A few weeks ago the group established an official plan and entered the development and testing phase. Two platform releases -- Microsoft's algorithms and search ad system adCenter -- will drive test and development.

Advertisers and publishers will know when the transitions occur through a quality table that the two companies have developed. They plan to work around the holiday shopping season in order to avoid interrupting paid-search and organic search result campaigns. If they can't make the transition without impacting the holiday season, they will do it next year. So far the team is on schedule, but it's too early to predict that the transition will be complete this year.

Handing the backend search function to Microsoft also means Yahoo can shift the "massive costs" of crawling, indexing and ranking the Web to its new partner. The move also enables Yahoo to focus on innovations for people searching on the network, but increase profits, because more revenue and less cost delivers better operating margins and returns. And although the two have formed a search alliance, Yahoo and Microsoft will compete for search affiliate and publisher partners.

Global Equities Research Managing Director Trip Chowdhry estimates those "massive costs" at about $35 million per quarter. The savings should increase profit about 2 cents per share. Investors didn't care enough to push up Yahoo's stock higher than its $15.58 opening price.

By 2 p.m. Pacific the stock had inched back up to $15.45 from its decline earlier in the day.

How will consumers know the transition has been completed? Morrissey demonstrated a search result from behind the scenes running on a configuration platform where Yahoo has connected its front-end search experience with Microsoft's back-end platform. The quality of the query returned "excellent" results. "The good news is this is working, the relevance is excellent and the quality of the results is where we want it," he says.

Aside from better results, the only difference is that consumers will recognize a "Results Powered by Bing" emblem at the bottom of the query page.

Earlier in the day, Bartz also admitted that Yahoo needs to play "catch up and then pass up." Although Yahoo has delivered innovative search technologies and features, she blamed outdated technology for the lag in performance. She described the delay related to "pretty search" that has exploded in recent years. By October, that should change as the company begins to roll out new offerings.