Representatives from Microsoft and Yahoo! are meeting regularly now to determine whether a deal can be struck between the two companies. Possibilities include a swapping of advertising assets in either direction, and one scenario in which Yahoo! takes over Microsoft's display advertising responsibilities while Microsoft runs Yahoo!'s search advertising business. It's unclear if Microsoft purchasing Yahoo! Search outright is still on the table, however.
One option that's not being pursued is a Microsoft purchase of Yahoo! Last year, Microsoft offered $44.6 billion for the struggling Internet company, but was rebuked. Since then, Yahoo! has found new leadership under CEO Carol Bartz, who is determined to keep Yahoo! independent and has deemed the company's search business a valuable asset.
A more likely scenario, then, is some sort of corporate partnership around search and/or advertising. Yahoo! is currently a distant number two to market leader Google, while Microsoft is an even more distant number three. Currently, Google controls 80 percent of all online advertising and 72 percent of online searches worldwide. Any partnership between Yahoo! and Microsoft would thus need to address Google's market power in a way that neither can currently do on its own