(UPDATED 11:00 CST, July 29, 2009)

The cat well out of the bag, Yahoo and Microsoft this morning detailed a 10-year agreement to cooperate on search and search revenues, pending regulatory approval.

Microsoft’s improved, renamed search engine Bing will become the exclusive algorithmic search and paid-search platform across Yahoo. Yahoo will become the worldwide exclusive sales force for both companies paid-search advertisers. (Self-serve for both companies will be handled by Microsoft’s ad-entry platform.) For the first five years, Microsoft will pay Yahoo acquisition costs of 88 percent of its search-ad revenue.

Each company will retain its own display-ad sales force and revenues.

Pending an OK from the Justice Department, the two companies hope to initiate the changes in early 2010. Worldwide, the rollout could take as long as two years — a fact that didn’t impress investors. Yahoo’s stock dropped 10 percent in early morning trades.

Nevertheless, the agreement is expected to provide Yahoo up to $500 million in new revenues and save about $200 million in operating expenses. It also comes with revenue guarantees from Microsoft for the first 18 months operation.

AdAge broke the story Tuesday night.  The deal with Yahoo would give Bing a 30 percent market share, AdAge estimated, compared with Google’s 65 percent share.

The deal allows Yahoo to concentrate on media, marketing and sales.

It also give us a glimpse at Yahoo’s emerging strategy: Offload activities it’s not particularly good at and partner with companies who are. Case in point: It shut down its own social-networking service, Yahoo 360 earlier this month. Yahoo’s newly redesigned home page includes Facebook, MySpace and EBay in its main navigation.

Where does this place HotJobs and consortium newspapers in Yahoo’s new strategy? That still remains to be seen as internally, Yahoo executives are evidently only beginning to sort it all out. About 600 newspapers are on Yahoo’s HotJobs recruitment platform and enjoy Yahoo’s vast network. Hundreds of papers use Yahoo’s behavioral-targeting ad platform and many are reporting success with it. While the company didn’t address its newspaper partners directly, the press release said the Microsoft deal did not cover other aspects of the two companies’ businesses, where they would continue to compete.

We reported last week on rumblings that Yahoo was looking for a buyer for HotJobs, as well as possibly a buyer for its small-business service unit. This much is fairly certain: A HotJobs buyer would expect to get Yahoo’s massive traffic in the deal. That’s a scenario Yahoo would be likely to support, if the Bing deal is any indication.

If Bing garners a 30 percent share of search, that’s bound to give newspapers a lift in search rankings — something they’re already getting from Google — and it’s likely to improve papers behavioral-targeting efforts greatly. 

But in the inevitable shifting of resources, the question becomes, will Yahoo’s newspaper partnerships become undersupported orphans? The answer — our take, at least — is that if operational support requires low overhead from Yahoo, brings dollars to its bottom line, Yahoo will continue.

Then there are the content opportunities for both newspapers and Yahoo — discussions that have only scratched the surface, we’re told. Discussions rooted in the proof that the companies can make money together could eventually bear fruit.