Following a year of to-and-fro negotiations, Microsoft Corp. and Yahoo Inc. finally agreed to partner up in the Internet-search sector in a joint effort to beef up competition against search-engine giant, Google.

Microsoft and Yahoo announced a 10-year partnership deal on Wednesday in which Microsoft will become the engine for Yahoo's Internet-search tool, while Yahoo will handle all sales relationships with advertisers. Both companies said they will still retain its own sales force for display advertising.

Carol Bartz, Yahoo’s CEO, said in a conference call that the deal only relates to search and search advertising, not Yahoo’s display-ads or other businesses. In these areas, both companies will still compete.

Management teams expect the deal to close in early 2010 and global implementation to take two years.
Analyst Marianne Wolk from Susquehanna Financial Group sees this as a window of opportunity for Google.

The deal could be a positive for Google in the short term, even as it helps Yahoo and Microsoft become more competitive longer term, Wolk wrote in a research note to clients.

In the short term making this deal work – implementation and integration over the 24 month period – could be a distraction that provides GOOG a window of opportunity – through 2012 if the deal closes as planned in early 2010, Wolk added.

Steve Ballmer, CEO of Microsoft, said he suspects the partnership will draw regulatory opposition from the competitor — I would say competitors, but it’s really the competitor, referring to Google.

He added: “We actually think this is one of these cases where us coming together will actually provide more effective competition to the market leader, not less.”