Yahoo strikes ad deal with rival Google

— -- Under the agreement, Yahoo can run ads supplied by Google alongside its own search results and on some of its websites in the USA and Canada. Yahoo will decide where the Google ads will run and alongside which search terms.

Yahoo CEO Jerry Yang said the partnership should add as much as $800 million in annual revenue. The deal covers four years; Yahoo holds options to renew for up to 10 years.

"Clearly the time has come to move on," Yang said in a conference call. "This puts Yahoo on a faster track to realize stockholder value."

Last month Microsoft withdrew a $47.5 billion takeover bid after Yahoo insisted on more money.

Off-and-on negotiations followed, but shut down seemingly for good on Thursday. The last discussion took place Sunday between unnamed Microsoft officials and Yahoo Chairman Roy Bostock and other Yahoo board members, according to Yahoo.

Microsoft issued a statement saying an outright acquisition is off, but it left the door open, noting an "alternative transaction remains available for discussion."

Yahoo faced a raft of potential shareholder lawsuits if it had nothing to offset the failed Microsoft deal, says Jonathan Yarmis, an analyst at AMR Research.

A deal with Google will almost assuredly invite antitrust scrutiny, Yarmis says. "Does Google really want people to closely examine their role in the advertising business?" he says.

Yang said the deal has been voluntarily submitted to antitrust regulators for a 3½-month review, although there was no legal requirement to do so.

Whether a Yahoo-Google partnership makes for better deals for advertisers remains to be seen, says Kevin Lee, founder of search consultancy Didit.com.

"It's difficult to imagine a situation where Yahoo both invests in its own search platform and uses Google's superior system to earn better revenues," Lee says.