Bing to challenge Google under new Yahoo-Microsoft deal

According to the sources familiar with the matter, Microsoft Corp and Yahoo Inc have agreed to an online search and advertising cooperation, in an attempt to rival Google Inc, that will be announced within 24 hours. Microsoft will not pay an upfront fee to Yahoo, and the focus of the deal is on sharing revenue between the two companies.

Under the expected deal, Microsoft's new Bing search engine will power Yahoo's searches, while Yahoo will handle the advertising sales, using Microsoft technology, said Advertising Age. The deal should give Bing a giant boost in competing with Google's search engine, which dominates the marketplace with 65 % of U.S. Internet searches, according to figures provided by research firm ComScore. Meanwhile, last month, Microsoft had only 8.4 % of the market and Yahoo 19.6 %.

Colin Gillis, an analyst at Brigantine Advisor, says that a deal combining the powers of the second and third-ranked search engine companies may also face privacy issues. That could trigger federal regulation limiting the ability of companies like Yahoo to collect data from users' searches and share it with partners, which would remove a key advantage of the partnership, said Gillis.

In addition, shareholders of both Microsoft and Yahoo have been urging the two to strike a deal for some time. Earlier this month, activist investor Carl Icahn, who owns about 5 % of Yahoo and is a director on its board, spoke out in favor of a search deal, as talks between the two companies appeared to regain momentum. Besides, shares of Yahoo traded at $17.39 in after-hours trading after closing at $17.22, while shares of Microsoft went up to $23.51 in after-hours trading from their close of $23.47.