...Microsoft and Yahoo! deal is back on again. And apparently this time its a more realistic proposition than ever.

If you cast your mind back to late last year, rumors about a Microhoo (Microsoft and Yahoo!) deal were filling our feeds daily (almost). The last roll of dice (in Nov 08) saw Yahoo! desperately seeking a Microsoft buyout after Google walked away from an advertising deal.

Even with extensive public discussions about being ready to sell by Jerry Yang (Yahoo!s CEO at the time), Microsoft and Yahoo! never got any closer to the closing the deal.

Since then Microsoft has been busy working its Bing angle. With a massive amount of fanfare, Microsoft relaunched its search offering under the Bing brand, and whilst only new, has made some inroads into the search share that has eluded it for years.

Now that Bing is live and eating into Yahoo!s share of the search engine market, discussions have reignited over search and advertising between the two companies, and industry insiders suggest theyre very close to signing the deal.

From a report in the 24/7 Wall Street blog:

Sources at a major client of investment house ThinkEquity say that the firm considers a Microsoft (MSFT) link-up with Yahoo! (YHOO) in the search business to be imminent.

And in the same post, speculation about the details of deal included:

Yahoo! will be paid $3 billion upfront and will get 11o% of the revenue that its searches provide after traffic acquisition costs in each of the first two years. In the third year, that figure would go to 90%.

While both companies continue to trail Google by such a significant amount, a union of forces like this will boost the appeal of their advertising offering, but it will take more than an advertising deal to change user search habits and thats where the sustainable advantage lies.

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