Sunnyvale, Calif. - Following months of conjecture and negotiations, Internet giants Microsoft (NASD:  MSFT) and Yahoo (NASD:  YHOO) on Wednesday announced a landmark 10-year search deal that the companies hope will help them take aim at market-leader Google. Under the agreement, expected to close early next year, Microsoft’s newly launched Bing search platform will power Internet search on Yahoo’s sites, while Yahoo will sell premium search ads for both companies.

Yahoo initially will keep 88% of the search revenue generated from its sites, and estimates that the deal eventually will boost its annual operating income by $500 million, while saving it $200 million in capital expenditures.

Each company will maintain its own display advertising business and sales force.

"This agreement comes with boatloads of value for Yahoo, our users and the industry," said Yahoo CEO Carol Bartz.

"This deal will help us increase our investments in priority areas in winning audience properties, display advertising capabilities and mobile experiences."

The two companies had been working on some form of a search deal since the spring of 2008, when Microsoft unsuccessfully tried to acquire Yahoo for $47.5 billion.

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