Yahoo announces 10-year, $800 million agreement with Google

Less than 24 hours after abandoning any hope of a Microsoft partnership, Online company Yahoo! has announced that it will outsource part of its advertising solution to Google for a 4-year initial term and two 3-year renewals at Yahoo!’s option.

The non-exclusive deal, which currently covers on Canada and the US, is likely to bring in annual revenues of $800 million and could boost Yahoo's cash flow by up to $450 million in the first year but is likely to attract the attention of competition and regulatory bodies.

The number two search engine has already partnered with Google and runs its Adsense for Search together with its own search results which, according to some, like Sanford Bernstein analyst Jeffrey Lindsay, could potentially "shut Microsoft out of the online space altogether".

Google and Yahoo! both joining forces could potentially see a major change in the online advertising market should Yahoo lose out to Google on most web search ads and other third parties could potentially join in at a later stage.

And there's also a clause about improved interoperability of instant messaging services between Google and Yahoo, which will make Microsoft irate since it already has an agreement with Yahoo.

Yahoo's shares fell by more than 11 percent in the last 24 hours but is still up by 10 percent over its pre-Microsoft acquisition attempt; in comparison, Microsoft share prices rose by more than 4 percent and Google gained around 1.4 percent.