Google controls some 65 percent of the US internet search market, with Yahoo ranked a distant second with 19.6 percent and Microsoft third with 8.4 percent. Combined, the latter two would hold a 28 percent share of the market.

Microsoft almost bought Yahoo for $47.5 billion last year, but the move was scuttled at the last minute by Yahoo co-founder and chief executive Jerry Yang, who later resigned following widespread criticism.

Microsoft has since refused to revive the buyout offer, but Yang's successor, Bartz, confirmed in May that the two companies were holding talks on search collaboration.

The 10-year agreement calls for Microsoft to license Yahoo's search technologies, with Yahoo initially receiving a whopping 88 percent of search-generated ad revenue.

'Through this agreement with Yahoo, we will create more innovation in search, better value for advertisers and real consumer choice in a market currently dominated by a single company,' said Microsoft chief executive Steven A. Ballmer.