Sources say Yahoo is about ready to turn over Web search advertising to its biggest competitor.
Yahoo is looking to turn over Web search advertising to Google following a successful test using Google's service to deliver ads alongside its Web search results, the Wall Street Journal reported on Wednesday, citing unnamed sources.
Spokesmen for Google and Yahoo declined to comment.
The possible partnership with Google would be part of an a bid by Yahoo to forge a three-way deal where Yahoo would merge with Time Warner AOL in return for Time Warner taking a stake in Yahoo, sources said last week.
The move by Yahoo to outsource Web search advertising to market leader Google would allow Yahoo to focus on its online brand advertising business where it has a stronger position. Yahoo and Google announced the limited ad test a week ago.
Google and Yahoo are considering how to ward off antitrust challenges, the Journal said, citing sources familiar with the discussions. A potential deal could involve limiting the ties to specific groups of search queries or regions, it said.
Yahoo is seeking alternatives to a Microsoft's unsolicited $31 per share takeover offer. It has said that that offer undervalues Yahoo and has signaled that it wants a higher offer before considering a Microsoft deal.
The Journal also reported a tie-up with Google would not necessarily derail an eventual deal to merge with Microsoft. Yahoo could simply pull out of the Google deal if Microsoft bought it, sources told the paper.