Ménage a Yahoo

What the two companies will learn from the test is how to set a value for either an allowance that Google might promise to Yahoo or how to structure a revenue-sharing deal.

In either case, the test will involve swapping far more information about sensitive advertising mechanics and revenues than Yahoo has been willing to share with Microsoft.

As recently as October, Yahoo's Yang was reluctant to even consider turning over Yahoo's ad systems to Google. In a conference call last October with analysts, Yang said: "We believe having a principal position in both search and display advertising is critical to creating ... long-term shareholder value." Last year, Yahoo generated 87% of its total revenues from "marketing services," the combination of so-called "banner" advertisements as well as search advertising.

In its annual report, Yahoo lists Google as first among its competitors: "Google's Internet search service directly competes with us for Affiliate and advertiser arrangements, both of which are key to our business and operating results." The report also lists Microsoft and AOL, as well as other publishers, as competitors.

Antitrust experts on Wednesday were quick to note that there are no regulatory problems with the carefully limited test outlined by Yahoo and Google. "If Google controls Yahoo in some way, it would lessen competition in the market and that's what the laws are concerned about," notes Lande, professor of anti-trust law at University of Baltimore Law School. "But of course, that's not what they've announced."

If Yahoo chose to let Google handle a bigger chunk of advertisements, regulators might take a closer look. "A search engine is searching and advertising, and if you merge advertising, that's very much like a merger," Lande suggests. "A joint venture is evaluated under the same anti-trust laws as a merger."

"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," said U.S. Senator Herb Kohl (D-WI), chairman of the Senate Judiciary Committee's Subcommittee on Antitrust, Competition Policy and Consumer Rights 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," Kohl said.

Large Yahoo shareholders are clearly weighing the price of the deal and how much it would help or hurt mixed portfolios that include both Microsoft and Yahoo holdings.

David Hilal, associate director of research at Friedman, Billings, Ramsey & Co., told Forbes.com that he was betting that Microsoft might still be tempted to raise its bid. That move could appease a few Yahoo executives and some big institutional investors.

Wendy Tananka and Andy Greenberg contributed to this report.

© 2008