When Microsoft (MSFT) formed a search partnership with Yahoo (YHOO), some analysts thought Yahoo let Microsoft get the better end of the deal. But while Microsoft certainly needed the Yahoo deal, it may have needed the company less than many once thought.

Microsoft’s new Bing search engine is doing remarkably well, better than almost anyone expected. New comScore data shows that Bing’s share of the search market rose to 9.3% in August, up sharply from July. Google’s (GOOG) piece of the market dropped a fraction to 64.6%. Yahoo!’s share was flat at 19.3%. Bing only launched in early June, so it has gained momentum quickly.

Perhaps Microsoft should have waited a few more months to see how Bing really performed before cutting a deal with Yahoo. Under the agreement, Microsoft will pay traffic acquisition costs to Yahoo at an initial rate of 88% of search revenue generated on Yahoo’s sites during the first five years of the agreement. The world’s largest software company will also pay Yahoo a revenue share on traffic it generates for the joint venture.

The deal was clearly important for Microsoft. It gives the company access to almost 30% of the U.S. search market when the two companies’ businesses are added together.

But investors might question whether Microsoft pulled the trigger too quickly without waiting to see how Bing performed. Bing’s success, in 20/20 hindsight, would have given Microsoft some additional leverage at the bargaining table.

Yahoo Stock Price Benefitted Handsomely

The stock prices of Microsoft and Yahoo! over the last month may be some indication that Yahoo actually got the better end of the deal.

The market originally said that new Yahoo CEO Carol Bartz did poorly in the negotiation by not getting a lot of cash up front for giving Microsoft access to Yahoo’s valuable search franchise.

But looking at the performance of the two stocks over the last 90 days shows Yahoo appears to have benefitted handsomely. The stock is up by over 15%, and Microsoft up about 8%. Granted, Microsoft is in a number of businesses outside search, but its Bing launch and the Yahoo deal have generated most of the news about the company.

A year of two from now, investors may look back at Microsoft and say that it was lucky not to have spent $44 billion to buy Yahoo when the portal company’s board resisted. But the market may judge the software company harshly for not waiting long enough to see if Bing would have given it more leverage in the partnership between the two companies that did eventually materialize.

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