Yahoo, MS close to search deal: report

Yahoo and Microsoft appear finally close to reaching a search deal that will see the companies team up to take on Google.

The companies are in the final stages of negotiations over a deal, and barring a major hitch an agreement will be reached, the All Things Digital blog said.  

The favored partnership model would see Yahoo trading its search advertising business and algorithmic search to Microsoft in exchange for a share in future advertising revenue. said.

Microsoft is likely to pay Yahoo several billion dollars for the relationship, the Seattle PI said.

The deal may also include display advertising, which Yahoo will take the lead on, All Things Digital said.

Activist investor Carl Icahn told Reuters he supports a Microsoft deal. Icahn, who owns around 5% of Yahoo, threatened a shareholder revolt over its decision to turn down Microsoft's $47.5 billion takeover offer last year, but the parties reached a truce.

Google has around 65% of the search market, compared to Yahoo's 19.6% and Microsoft's 8.4%. Many observers expect a partnership will be the only way to challenge Google's dominance, Bloomberg said.