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Yahoo to try using Google for search ads

In a dramatic departure that signals how seriously it's taking the Microsoft acquisition attempt, Yahoo will test the use of Google's ads for searches.

Yahoo will test the use of Google advertisements on some of its search pages, the companies said Wednesday, a move that raises the possibility of a significant departure from Yahoo's present ad strategy.

"Yahoo will be testing Google's AdSense for Search service, which will deliver relevant ads alongside Yahoo's own natural search results. This is only a limited test, and does not necessarily mean that Yahoo will join the AdSense program," Google spokesman Daniel Rubin said.

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The test is narrow in scope, Yahoo said: "The test will apply only to traffic from yahoo.com in the U.S. and will not include Yahoo's extended network of affiliate or premium publisher partners. The test is expected to last up to two weeks and will be limited to no more than 3 percent of Yahoo search queries."

The story was first reported Wednesday by The Wall Street Journal.

Carrying Google's search-related ads would be a major departure for Yahoo, which has invested extensively in its own search ad system, called Panama. But there is no doubt that the company is evaluating serious alternatives, now that Microsoft has launched a decreasingly amicable attempt to acquire the company.

Microsoft was quick to raise antitrust concerns about a Google-Yahoo partnership. "Any definitive agreement between Yahoo and Google would consolidate over 90 percent of the search advertising market in Google's hands. This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo," Microsoft general counsel Brad Smith said in a statement.

The test caught antitrust attention in Washington, which already was on alert after Google's acquisition of Internet ad company DoubleClick, which closed in March.

"We will be following closely the results of the short-term test alliance between Yahoo and Google. Should there be moves to make this agreement permanent, we will examine it closely in the Antitrust Subcommittee to ensure that it does not harm competition," Wisconsin Democratic Sen. Herb Kohl, chairman of the Senate's Subcommittee on Antitrust, Competition Policy and Consumer Rights, said in a statement. "Following closely on the heels of Google's acquisition of DoubleClick, this Google-Yahoo alliance would represent even further consolidation in the Internet advertising market."

Yahoo indicated the Google test is part of its attempt to evaluate new business options, but offered cautious words about what the test might lead to.

"As previously announced, Yahoo's board of directors is exploring strategic alternatives to maximize stockholder value, including exploration of potential commercial business arrangements. The company noted that the testing does not necessarily mean that Yahoo will join the AdSense for Search program or that any further commercial relationship with Google will result," the company said.

The possibility of a Yahoo-Google ad partnership predates the Microsoft acquisition move in February, the Journal said. Citing people familiar with the situation, it reported that Yahoo already had begun talks to outsource its European Web search advertising to Google before the Microsoft move.

Yahoo lags Google both in search market share and in the ad revenue generated for each search, but it's a major Web site that delivers millions of advertisements daily. Using Google ads could help increase the revenue generated by each ad, depending on how revenue is shared between Google and Yahoo. The Journal said Yahoo likely would keep a majority of such revenue.

With the prospect of a proxy fight looming after Microsoft Chief Executive Steve Ballmer gave Yahoo a three-week ultimatum, Yahoo shareholders are increasingly important to Yahoo's future. This is especially true of institutional investors such as insurance companies that hold large numbers of shares.

Yahoo definitely needs to send strong signals to those shareholders, if it wants to persuade them that Chief Executive Jerry Yang's position that Microsoft's price is too low has merit. In a report Monday, Piper Jaffray analyst Gene Munster said that of a "limited sample of 20 institutional Yahoo investors, the majority suggest they prefer the current deal (with Microsoft) to no deal."

Update 12:49 p.m. PDT: I added more details from the Journal story and some further context. Update 2:03 p.m. PDT: I made extensive changes to reflect the fact that Google and Yahoo confirmed the partnership. Update 2:21 p.m. PDT: Added comment from the chairman of the Senate's Antitrust Subcommittee.

News.com's Elinor Mills contributed to this report.