Microsoft, Yahoo in Ad Deal Talks (Apr. 10, 2009) — Yahoo and Microsoft have restarted discussions, over advertising agreement. Ms. Carol Bartz, Yahoo’s new chief executive met with Steven A. Ballmer, Microsoft’s chief executive, a person briefed on those discussions said Friday.

microsoft-yahooThe person said the new discussions are in early stages. They center around a possible advertising partnership under which Microsoft would sell search ads for Yahoo, and Yahoo, in turn, would sell display ads on Microsoft properties.

Microsoft executives are bullish about the capabilities of the new service. But they readily admit that it does not address one of the principal challenges the company faces in competing with Google: Microsoft’s audience and its base of advertisers are tiny compared with Google’s. That makes Microsoft’s search business, in which advertisers bid against one another in an auction, less lucrative than Google’s.

A partnership that would let Microsoft tap into Yahoo’s user and advertiser base would go a long ways toward addressing that problem, and could create a more powerful No. 2 competitor to Google.

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