US and European competition authorities have given the go-ahead to a proposed search partnership between Microsoft and Yahoo, which plans to challenge Google's dominance of the market.
Under the terms of the deal proposed in July 2009, Microsoft will provide the algorithms for search results to small businesses that buy ads linked to search terms.
Yahoo will manage bigger companies that buy search advertising. The company will also give Microsoft a 10-year licence to Yahoo's search technology and 400 employees.
"This breakthrough search alliance means Yahoo can focus even more on its own innovative search experience," said Carol Bartz, chief executive officer at Yahoo.
"Yahoo gets to do what it does best: combine its science and technology with compelling content to build personally relevant online experiences for its users and customers," she said.
Microsoft chief Steve Ballmer said, "I believe that together, Microsoft and Yahoo will promote more choice, better value and greater innovation to our customers as well as to advertisers and publishers."
European approval of the alliance was expected, but US approval was less assured because Yahoo and Microsoft have a larger combined market share in the US than Europe.
US authorities have vowed to take a tougher line on competition than under previous administrations and US regulators have opposed mergers between number two and three players in the past. The Federal Trade Commission controversially blocked Heinz from buying Beech-Nut, even though Gerber controlled two-thirds of the market.
But EU competition officials said the partnership between Microsoft and Yahoo would be good for competition in the European search advertising market, which is dominated by Google with a 90% share.
Microsoft and Yahoo are now faced with the task of integrating their operations and have set the goal of moving US advertisers and publishers to the combined system by the end of 2010.
All global customers and partners are expected to be transitioned by early 2012, the companies said.