Yellowpages.com, Microsoft Ink Multiyear Distribution Deal

Today Yellowpages.com, a subsidiary of AT&T, announced a multiyear distribution deal with Microsoft. In April, Yellowpages.com’s local listings and advertisers will begin appearing across Microsoft properties, including, MSN Yellowpages, MSN Search, Live Search and Maps.

Financial terms of the transaction were not disclosed. Typically, however, these distribution deals involve a minimum guaranteed payment in exchange for traffic guarantees. The top payment on traffic referrals is usually capped.

The Idearc deal, which this deal replaces, was rumored to be worth more than $20 million per year to Microsoft. We would therefore expect the AT&T deal to be within that range.

The Yellowpages.com announcement is more bad news for Idearc, Microsoft’s current local provider. On top of the distribution loss, Idearc recently had a string of high-profile executive departures that include: two CEOs (the last one eight days into the job reportedly leaving for health reasons), the CFO, the chief legal officer and the president of the Internet group. The company also reported lower than expected earnings weighed down by heavy debt service. Finally, it means that Idearc reps will face off against Yellowpages.com reps touting valuable logos in their sales kits.

The Microsoft deal means AT&T has now closed exclusive distribution agreements with all the major portals (AOL, Microsoft and Yahoo!). The company also has a reseller agreement with Google.

Yellowpages.com CEO Charles Stubbs expects the MS deal to add an incremental 35 million monthly searches on top of 125 million currently reported. Stubbs was pleased that this deal brings the company even more reach “across all 50 states.”

What’s the point of specifically mentioning all 50 states? Well, Yellowpages.com has been aggressively adding “white space” sales reps (areas where AT&T does not operate with a print book). We estimate the company has added more than 1,000 Internet sales personnel over the past year. These reps predominately sell in locales where Idearc operates print and online. From AT&T’s perspective, this means that all sales are truly incremental dollars with little fear of print cannibalization.

We will offer more detailed analysis of this deal in an upcoming Kelsey Group Advisory.

Update: Idearc Media has issued the following statement on the AT&T-Microsoft agreement:

“Our agreement with MSN did not meet our expectations and did not perform as effectively as we had hoped. We are continuing to pursue other opportunities for our advertisers — given that we have a performance-based model and a different strategy than MSN.”

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