Microsoft and Yahoo start new talks

Bobbie Johnson

Microsoft and Yahoo are in talks over a possible search engine partnership less than a year after Bill Gates' software group failed in a $44bn (£21.3bn) takeover attempt on the internet company.

Although there is no suggestion that Microsoft's failed bid will be resurrected, the two companies are believed to be discussing ways they can link up to combat the growing power of their chief rival, Google.

Quoting sources close to the discussions, the authoritative Dow Jones All Things Digital blog said that "the talks between the pair are preliminary and wide-ranging".

The talks come more than a year after Microsoft launched its audacious and drawn-out attempt to buy its Silicon ­Valley rival. The episode ended with the $44bn bid being rejected, but led to Yahoo's chief executive Jerry Yang stepping down from the role.

His replacement, Carol Bartz, arrived in January and cleaned out much of Yahoo's executive team, paving the way for fresh contact with her counterpart at Microsoft, Steve Ballmer.

A link between the two companies is seen by many as mutually beneficial in their struggle to take on the growing influence of Google. Yahoo and Microsoft have lost further ground to their chief rival, according to the latest figures on search engine market share from ComScore.

The figures showed Yahoo now has 20.6% of the market and analysts predict it could fall another 3% this year. Meanwhile Microsoft has slipped to 8.2%, while Google has continued to increase its dominant share. Neither Microsoft nor Yahoo would comment, but it is known that they are eager to explore any way to boost their standing in the search advertising business.

Talking to Wall Street analysts, Ballmer confirmed that he thought fresh blood could kickstart discussions.

"The fact of the matter is, these two guys [Microsoft and Yahoo] should somehow figure out how to get together and create more competition for this guy [Google]. And I'm hoping perhaps that that's a reasonable conversation to have with new management at Yahoo as Carol comes on board," he said.

Yahoo has been more reticent over restarting discussions with the Seattle-based software company – particularly after Ballmer poached a number of the company's most valued staff members.

Bartz, who is notoriously concerned with media coverage and leaks about the company's dealings, has previously told investors that she would not let any negotiations take place in the glare of the public eye. "I said this to Mr. Ballmer: I will not negotiate with you and 30,000 of my closest friends. I will negotiate privately," she said last month, telling shareholders that "if something happens, you will know about it then".