Yahoo and Microsoft have had a very tumultuous relationship. Microsoft wanted to buy Yahoo but it and Yahoo were unable to come to an agreement that would merge the two companies. Microsoft ultimately tried a hostile takeover of the company that failed and the end result was that Microsoft walked away from the deal.

Rumors have been swirling that Yahoo and Microsoft were in talks again to come to some sort of arrangement on search. Yahoo's new CEO Carol Bartz joked in May that Yahoo would sell to Microsoft for "boatloads" of money. EWeek reports that Yahoo's board of directors met last week to discuss a potential search partnership with Microsoft. However, reports claim that some Yahoo directors are concerned any deal with Microsoft would fail under scrutiny from regulators.

Google had approached Yahoo to prevent Microsoft's hostile takeover of Yahoo. Google later pulled out of the deal after the DoJ told Google it planned to sue to stop the deal. The new talks between Microsoft and Yahoo would allow Microsoft to run its ads on the Yahoo network with Yahoo taking the lead in selling advertising for the companies.

24/7 Wall Street reports that Microsoft would pay Yahoo $3 billion up front for the deal and would give Yahoo 11% of the revenue generated from the ads after costs for traffic acquisition were removed. After the first two years the percentage Yahoo receives of the revenue would grow to 90%.

According to eWeek Cark Icahn has given his approval to the deal. Sources cited by the Wall Street Journal say that it is unlikely a deal will be announced soon because some Yahoo board members are still concerned about the deal.

The Center for Digital Democracy (CDD) said this week, "Microsoft and Yahoo should expect privacy and consumer groups to vigorously press regulators to closely and skeptically examine any deal."

CDD Executive Director Jeffrey Chester told eWeek, "Privacy groups, such as my CDD, have been collecting "string" on both companies, in expectation of a deal. We will provide this information to the FTC [Federal Trade Commission] or DOJ [Department of Justice] and the Congress. A merger that further concentrates control by a very few over the digital marketing and advertising business illustrates how quickly consolidation has emerged as a principal and worrisome feature of the Internet era."