Microsoft is close to finally closing a search partnership with Yahoo published reports said Friday.
Terms were uncertain, but the companies in the past have explored arrangements that would see Microsoft acquire Yahoo's search advertising business for a combination of upfront cash and ongoing payments.
Both Microsoft and Yahoo have been working independently to beef up their search offerings with an eye to closing the gap with industry leader Google. An alliance could further strengthen their position.
Microsoft last month rolled out Bing, a search service that the company has labeled a "decision engine" for its ability to produce actionable results. For instance, a search for, say, hotels in San Francisco yields information about prices and vacancies—and rooms can be booked in just a few clicks.
Yahoo earlier this month rolled out a new search engine tool that, like Bing, is designed to deliver a search experience that goes beyond simple query results and paid listings.
Yahoo's new Search Pad feature, still in beta testing, gives users a platform on which they can create notes based on their search results, share the information with friends, family, or business associates, and save the results for future use.
Despite the advances, the companies have their work cut out. Google presently controls about 65% of the U.S. search market, while Microsoft owns only about 8% of the market, according to the most recent numbers from ComScore. Yahoo, the number two player, held 20% of the market, as of May.
Both Microsoft CEO Steve Ballmer and his Yahoo counterpart Carol Bartz have in recent months suggested that a merger or partnership might be the best way for their companies to confront Google.
"Over time, there's still a good opportunity to do a deal," said Ballmer, speaking at a media summit in New York City in March.
The remarks reinforced comments by Bartz in January. Bartz told company employees that she would investigate whether a sale of Yahoo's search business makes sense. She also has reportedly met informally with Ballmer himself.
Adding to the speculation is the fact that Microsoft in December hired Qi Lu, who was Yahoo's engineering VP for search and advertising technology. Microsoft named Lu head of its online services unit.
Yahoo shares were up about 3.5% in early trading Friday, while shares of Microsoft were off less than 1%.
