Microsoft, Yahoo reportedly in talks for advertising partnership

News channels are abuzz once again with rumours of a Microsoft-Yahoo link-up. Only this time, it's not a complete change of ownership but an advertising partnership. Competitive stress in an industry dominated by Mountain View-based Google may have pushed the two rivals, who have plenty of bad blood between them, towards each other again.

News reports Friday say the chief executives of Microsoft Corp. and Yahoo Inc. met last week to discuss linkups. In one scenario, Microsoft would sell Yahoo's search ads while Yahoo manages Microsoft's display ads. It's the first significant move toward a new deal since Yahoo walked away from Microsoft's unsolicited buyout offer last year.

Last year Microsoft offered $47 billion for Yahoo, but the Sunnyvale web portal refused the deal and fought off Microsoft. That angered some shareholder groups, including a group led by Carl Icahn, and Yahoo then had to fight a proxy war. Meanwhile, Yahoo's share price plummeted below a third of what Microsoft had offered to pay. (See: Microsoft withdraws from Yahoo!; shareholders restive with Yang  and Major shareholder supports Yahoo CEO against Carl Icahn)

CEO Jerry Yang, who started Yahoo, suffered from these battles and ultimately surrendered the corner office, returning to his erstwhile title of ''Chief Yahoo.'' The company brought in former Autodesk boss Carol Bartz as CEO. Microsoft CEO Steve Ballmer has already had a meeting with Bartz to discuss possible partnership areas and said he was not averse to a tie-up.(See: Yahoo has new CEO, Carol Bartz  and Microsoft still keen on slice of Yahoo: Ballmer)

Google, meanwhile, is also making an entry into the display advertising market, threatening the longer-standing display businesses of both Yahoo and Microsoft.