AP source: Microsoft, Yahoo near Web search deal

Microsoft appears to have finally locked up rival Yahoo in a long-awaited Internet search partnership aimed at narrowing Google's commanding lead in the most lucrative piece of the online advertising market.

A person with knowledge of the talks told The Associated Press that the details of the Microsoft-Yahoo alliance are expected to be announced Wednesday. This person spoke Tuesday night on condition on anonymity, confirming earlier reports, because the deal was not yet final.

Both Redmond, Washington-based Microsoft MSFT and Sunnyvale, California-based Yahoo YHOO declined to comment late Tuesday.

The deal does not appear to be as far-reaching as many investors envisioned.

For instance, Yahoo would not get cash payments in advance from Microsoft. That development could disappoint investors. Yahoo Chief Executive Carol Bartz had pledged she would join forces with Microsoft only for "boatloads of money."

Instead, it appears the two companies will split the revenue generated from the search ads on their websites. Yahoo appears set to handle the ad sales and customer service while Microsoft's technology will power the search results and identify the appropriate commercial results to display.

Microsoft, the world's largest software maker, has been courting Yahoo for several years in hopes of expanding its share of the lucrative online search market.

After being repeatedly rebuffed, Microsoft launched an unsolicited bid to buy Yahoo in its entirety. With co-founder Jerry Yang at the helm, Yahoo put up such staunch resistance that Microsoft withdrew its last offer of $47.5 billion, or $33 per share, nearly 15 months ago.

Yahoo shares have been sagging ever since, although they have been rising in recent weeks in anticipation of a Microsoft search deal. The stock gained 22 cents to close Tuesday at $17.22, then climbed another 17 cents in extended trading.

Microsoft is counting on Yahoo's search engine, which ranks No. 2 with a worldwide market share of 8%, to pose a more formidable challenge to Google, which holds 67% of the global audience, according to the most recent data from research firm comScore Inc. In the United States, Google's share is 65% compared to roughly 20% for Yahoo.

Despite spending billions to upgrade its search engine, Microsoft still held just a 3% share worldwide and 8% in the U.S. As part of its latest improvements, Microsoft renamed its search engine Bing.

The person who described the deal to the AP said Yahoo might promote Bing on its highly trafficked website, but that detail is not yet certain.

Michael Liedtke reported from San Francisco.