Microsoft Corp has reportedly (as of May 7, 2013) extended the revenue guarantee it gives to Yahoo Inc in the companies’ under performing search partnership. As a matter of fact, the US RPS guarantee that expired on March 31, 2013 will be extended for another year, taking effect on April 1, 2013, culmination on March 31, 2014.

But meanwhile, let us go back a few years to take a look at the background story behind this extension. Originally, Yahoo and Microsoft signed a 10-year search partnership in 2010 in the hope that their combined strategies would force a more competitive challenge to Google Inc, the Numero Uno of search engines the world over. But despite all that trumpet blast nothing much could be gained – Google still remained the dominant search engine, with around two thirds of the US search market under its cover, while Yahoo and Microsoft’s combined efforts failed to bring about any upward trend whatsoever.

To add insult to injury, Yahoo, in April, 2011, posted a 2^nd quarter massive decline in its search revenue, putting the entire blame on Microsoft to whom it had to pay 12% of its own search revenue. Moreover, the advertising rates that Yahoo collects from the search ads on its own website are below the levels that were in use prior to its partnering with Microsoft. Needless to say, observers are already wondering if the Yahoo-Microsoft alliance falls short, a Yahoo-Google deal could emerge shortly.

Returning back to the current status, we may find that the extension of the search revenue guarantee establishes Yahoo’s first agreement with Microsoft after Marissa Mayer became the CEO of yahoo in July 2012. Mayer in her attempts to reverse the continuous decline in Yahoo’s revenue as well as that of its online traffic could not but become critical of the terms of Microsoft partnership drawn up by her predecessor Carol Bartz.

“We need to see monetization working better because we know that it can and we have seen other competitors in the space illustrate how well it can work” commented Mayer about the deal in course of an investor conference in February, 2013.

Digging deep into the partnership vis-à-vis the extension, we may observe that Microsoft has guaranteed for 18 months the revenue per search for ads that appear on Yahoo sites but not for those that appears on other sites.

However, the brighter side of the story is reflected by UBS analyst Eric Sheridan, who in a note to investors had said that he was raising the gross revenue estimates by $60 million over the next four quarters as a direct result of the extension of the guarantee- which could be a breather for Marissa Mayer.