Update: Microsoft and Yahoo close to search ad deal

Microsoft could buy Yahoo's search advertising business, although discussions have broken down before

In less than a week, Microsoft could reach an alliance with Yahoo that could compete better with Google in online search advertising, according to media reports.

Microsoft has been courting Yahoo on and off since February 2008, when it offered to buy the company for $44.6 billion in cash and shares. The offer was rejected and consequent discussions focused on Microsoft taking over Yahoo's search and advertising businesses.

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The latest deal would call for Microsoft paying Yahoo several billion dollars for its search advertising business, with Yahoo also receiving ongoing payments, according to All Things Digital, a blog owned by the Wall Street Journal.

Microsoft and Yahoo could announce a deal as early as next week, according to media reports. Both companies are due to announce quarterly financial results next week.

Microsoft and Yahoo representatives contacted in London on Friday had no comment on the reports.

Yahoo has played a coy game with Microsoft, at times saying it was open to a deal only to later push Microsoft away. In the meantime, Yahoo has undertaken a massive corporate restructuring while trying to revive its brand and gain a larger share of the online advertising market, the source of Google's fortunes.

Last month, Yahoo's outspoken new CEO Carol Bartz asserted that the company would "be better off if we had never heard the word Microsoft." Bartz replaced company co-founder Jerry Yang as CEO in January.

If Microsoft took over Yahoo's online advertising business, the companies could collectively save money while aggregating their market shares. Yahoo has particular expertise in mobile and display advertising.

However, many analysts questioned how quickly Microsoft would be able to integrate Yahoo into its operations and if the resulting entity would be a nimble competitor against Google.

Yahoo's most valuable asset is likely its search advertising business, said Shar VanBoskirk, an analyst who covers online advertising for Forrester Research. If Yahoo sells that, "what is Yahoo left with?" she asked.

Yahoo would have been wise to accept Microsoft's previous offers for the entire company rather than trying to sell off a piece of it. "I think that's a less good move than selling the whole business," VanBoskirk said.

A combined Microsoft and Yahoo would be a highly competitive entity, VanBoskirk said, but added that it's difficult to say whether a deal will come to fruition this time.

If Microsoft took over Yahoo's online advertising business, the companies could collectively save money while aggregating their market shares. Yahoo has particular expertise in mobile and display advertising.

However, many analysts questioned how quickly Microsoft would be able to integrate Yahoo into its operations and if the resulting entity would be a nimble competitor against Google.

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