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Yahoo has decided the future of web search is Bing, the new search engine Microsoft launched early last month.
It means when a person does a search on Yahoo, it will be powered by Microsoft. The two companies then will split ad revenue -- 12 percent for Microsoft, 88 percent for Yahoo.
"We will provide better and more relevant search results," Yahoo President and CEO Carol Bartz said. "Yahoo is committed to delivering the best user experiences, whether through our own products and technologies, or by working with other innovators like Microsoft."
Only last year, Microsoft had made a hostile $47.5 billion bid to buy Yahoo. Now they will work jointly to try to compete against Google.
"It creates the resources and scale to compete effectively in search and drive new innovation," Microsoft CEO Steve Ballmer said.
Analyst Karsten Weide, a former Yahoo executive in Germany, says the deal could be risky for Yahoo.
"If Microsoft fails to keep up with Google in terms of quality of search, then Yahoo's ship will sink with Microsoft's ship," Weide said.
Google is the dominant search engine with a 65 to 70 percent share of the U.S. market. Yahoo and Microsoft combined have a 28 percent share.
"Yes, they will have more of a traffic market share, they will have probably a little more revenue than they would have now, but it's not going to dethrone Google," Weide said.
Despite good reviews, Bing has not won over Google users.
"You Google things, so personally I don't think there's much hope," Internet user Mike McCarthy said.
And what does Google say about the deal? "Competition brings about great things for users."
The Microsoft-Yahoo deal still requires regulatory approval; both companies hope that will come early next year.
Wall Street was disappointed that the payoff for Yahoo will not be more immediate -- Yahoo stock sank 12 percent. Microsoft went up slightly and Google fell, but by less than 1 percent.
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