Ater years of battling its larger search engine rival for online advrtising, Yahoo has said that it would launch a limited test of Google's AdSense for search services, drawing a sharp response from unbidden suitor Microsoft, which warned that a Yahoo-Google alliance would cover some 90 per cent of online advertising.    

Yahoo yesterday announced a two-week experiment during which it will show search-driven Google advertements alongside its own search results on the Yahoo website.

However, the test will be run on traffic from yahoo.com in the US and will not include Yahoo's network of affiliate or premium publisher partners.  Moreover, it  will be limited to up three per cent of Yahoo search queries.   

However, commentators  speculate that this could lead to a broader deal in which Yahoo lets Google sell search advertising for it in while Yahoo focuses on online brand ads, boosting its own revenues and freeing up resourcces for investments in areas of its strength.

Calling it an astute move, analysts say that Yahoo has at last made a move to escape Microsoft's unsolicited takeover bid. At the same time Yahoo is reportedly talking to rival internet portal AOL about a merger.

Yahoo said the testing does not necessarily mean it will "join the AdSense for Search programme or that any further commercial relationship with Google will result."       

Reacting to Yahoo's announcement, Microsoft's general counsel Brad Smith said in a statement, any definitive agreement between Yahoo and Google would consolidate over 90 per cent of the search advertising market in Google's hands,.and would make the market far less competitive, ''in sharp contrast to our own proposal to acquire Yahoo. We will assess closely all of our options."   

Smith said Microsoft remains committed to a $ 44.6 billion takeover offer for Yahoo.

Yahoo is also reported be moving towards a deal with Time Warner to merge with its AOL, even as Microsoft is said to have begun talks with Rupert Murdoch's News Corp, owner of social networking site, MySpace, for an alliance to acquire Yahoo.

News Corp had earlier been in talks with Yahoo to blunt Microsoft's unsolicited bid in an effort to align its online social site MySpace with Yahoo to create a stronger rival to Google.

Yahoo is also reported be moving towards a deal with Time Warner to merge with its AOL, even as Rupert Murdoch's News Corp is said to be mulling an alliance with Microsoft in a bid for Yahoo. News Corp believes its MySpace online social site and create a stronger rival to Google.
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But with Yahoo's initiative to run Google's advertiements on its own site, analysts are agreed that Yahoo has regained some of the negotiating momentum it appeared to have lost to Microsoft.

According to a report citing unnamed sources, Time Warner will wind up AOL's business, barring its legacy dial-up internet access operations, and merge it into a combined Yahoo company. Such a deal would value AOL at $10 billion.

Moreover, Time Warner would pay Yahoo for a 20-per cent stake in a merged Yahoo-AOL entity, which acording to a The Wall Street Journal report, Yahoo will use along with other resourcces to buy back several billion dollars worth of Yahoo stock at a price somewhere in between $30 and $40 a share.

According to The New York Times Microsoft is said to be in talks to bring News Corp on board to acquire Yahoo - an alliance that would bring together Yahoo, Microsoft's MSN and News Corp's MySpace, to create a formidable challenger to Google, if it were to receive approval from antitrust authorities.

The report said that the terms of the proposed Microsoft-News Corp deal are still being ironed out outand may involve News Corp making a  cash contribution for a partnership with Microsoft for its share of the Yahoo acquisition.