Yahoo Takes the Offensive in Microsoft Battle

Beleaguered Web giant Yahoo, scrambling to find an alternative to Microsoft's hostile takeover bid, is close to striking a deal allowing its archrival Google to serve ads on its network.

The pact, which calls for a limited test at first, could lead to an escape hatch for Yahoo if it and Google determine that such an arrangement — on a much broader scale — could be profitable for both companies.

Yahoo's decision to test drive a search advertising partnership with Google is a sign that Yahoo C.E.O. Jerry Yang is scrambling to find an alternative to Microsoft, whose irascible chief executive Steve Ballmer has been making increasingly menacing threats lately.

To outsource its search advertising to Google would be for Yahoo to tacitly admit of defeat in the search ad wars that have been running for almost a decade.

It remains to be seen if the Google-Yahoo partnership will pass regulatory scrutiny, given Google's overwhelming dominance of the search ad market. But the companies are going ahead with the test anyway.

by Sam Gustin