Microsoft and Yahoo are said to have reached a deal

Microsoft and Yahoo have agreed to the terms of an online search and advertising deal that will be announced as soon as Thursday, NZ time, according to reports.

The two sides are close to signing a partnership that, in a shift from earlier plans, would see Yahoo playing a greater role in search advertising, the Wall Street Journal reported today, citing unnamed sources.

A separate report in the Journal's All Things Digital blog said that "while it is not clear if the actual papers have been inked, sources said negotiations are complete" and that the deal "will be announced" within the next 24 hours. The Reuters newswire, citing unnamed sources, also reported that a deal has been reached.

The deal involves Yahoo agreeing to use Microsoft's search engine on its Web sites, with Yahoo handling the sale of text ads that appear alongside the search results for its own sites and some of Microsoft's, the Journal reported.

Some earlier discussions had focused on Microsoft acquiring Yahoo's search and search advertising businesses. The new deal appears much less ambitious. It involves no up-front payment to Yahoo, with the focus instead being on revenue sharing, All Things D said.

The partnership could serve to increase Yahoo's share of the search ad business, the Journal reported. But Microsoft's AdCenter platform will be used as the underlying technology, All Things Digital said, putting a question mark over the future of Yahoo's new Panama advertising platform.

The companies have reportedly been close to a deal before, with no announcement materializing. The Journal cautioned that this latest deal has yet to be signed off on by either company and could be delayed further.

Both sides have worried that a partnership combining their search businesses could run afoul of regulators, the Journal said. The companies plan to argue that combining their businesses would serve customers by strengthening competition against Google, the market leader.

Neither Yahoo nor Microsoft could immediately be reached for comment Tuesday. In the past they have declined to comment ahead of any official announcement.

The road to a deal has been a long one. The possibility that Yahoo might be open to a partnership emerged last year while Microsoft was in the midst of trying to acquire the company.

Since then it has tried to acquire Yahoo's search business at least twice. In June it offered to pay US$1 billion for the search assets and to invest another $8 billion in Yahoo at $35 per share.

Reporters and analysts have been looking for any public signs that a deal is near. In Yahoo's quarterly earnings call last week, CEO Carol Bartz, responding to a question, complemented Microsoft's Bing search engine, prompting speculation that the companies were moving closer.