Microsoft-Yahoo search-engine deal looks likely

After 18 months of playing footsie, Microsoft and Yahoo may finally be ready to announce a deal as early as today that would unite parts of the two companies.

It may not be the blockbuster merger that Microsoft wanted 18 months ago, but it likely involves a partnership that would allow the two companies to creep closer to search-engine giant Google.

Reports Tuesday from Advertising Age and The Wall Street Journal both say a search advertising and technology deal could be announced as early as today.

Ad Age said Microsoft's search engine, Bing, would become the default search engine for Yahoo. Yahoo would take over selling advertising for Bing, although it would use Microsoft's AdCenter sales-technology platform, said Ad Age, a publication and Web site that focuses on the advertising and marketing industry.

Both companies declined to comment on the latest reports, which surfaced Tuesday afternoon. That's about a week after murmurings emerged that a deal was close, culminating months of reported on-again, off-again discussions.

If a deal is announced today, Microsoft would get an added lift heading into its annual Financial Analysts Meeting on Thursday in Redmond. The mood probably would have been otherwise dour, given the company's dismal earnings report last week.

In crafting a deal, Microsoft and Yahoo would hope to compete more effectively with Google, which dominates the online-search business with 65 percent of search traffic.

Microsoft recently redesigned, rebranded and relaunched its search engine as Bing to make some headway, and has shown some meager growth, from 8 percent to 8.4 percent. That half a percentage point came from Yahoo's share, which dipped to 19.6 percent of the market, according to the latest data from research firm comScore.

Search traffic determines how much each company makes in online-advertising sales. Microsoft's Online Services Business lost $732 million in its last quarter, compared with a $485 million loss a year ago. Sales also faltered because of a decline in display advertising, from $837 million to $731 million.

While Sunnyvale, Calif.-based Yahoo was a pioneer in developing a search engine and shaping the Internet and Silicon Valley, the company has diminished with Google's rapid growth.

If Microsoft and Yahoo continue without a partnership, analysts say the two are probably destined to continue stealing each other's traffic, rather than take it from Google.

Interestingly, at one point during the 18 months the two companies have engaged each other, Yahoo and Google worked on a search partnership that Google later withdrew after federal officials expressed antitrust concerns.

Microsoft Chief Executive Steve Ballmer has said he intends to keep investing in search, despite the company's previous efforts.

"Man, oh man, have we taken a lot of abuse and we're still just an itsy-bitsy part of the market," Ballmer said at Microsoft's Worldwide Partners Conference earlier this month. "But, man, we got a little mojo, we've got a little innovation, but we're going to keep going and going and going."

Last year, Microsoft tried to buy Yahoo, with a $47.5 billion acquisition bid announced Feb. 1, 2008. Yahoo's board rejected the bid and months of negotiations were unsuccessful. In May 2008, Ballmer withdrew the bid but subsequently said he was still interested in some kind of deal involving search.

In December, Microsoft hired a former senior Yahoo executive, Qi Lu, to head the company's online-services business. Relaunching Bing was one of his first tasks.

At the beginning of the year, Yahoo hired Carol Bartz as chief executive, replacing co-founder Jerry Yang, who took the brunt of the criticism from shareholders and analysts for not working out a deal with Microsoft.

Since Bartz's arrival, reports of fresh talks between the companies began circulating again.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com