Details of a Microsoft-Yahoo partnership to challenge Google's dominance of online advertising are expected to be announced today.
A source said the companies would share revenue generated by search ads on their websites.
Yahoo would use Microsoft's search engine, Bing, and it is likely that a "powered by Bing" message will appear on Yahoo's highly used pages.
The companies would also use Microsoft's advertising technology to deliver appropriate ads alongside search results, while Yahoo would handle the ad sales and customer service.
The source said it was not clear whether the final deal will also cover sales of billboard-style "display" ads, or what will happen to Microsoft's own ad sales team.
Microsoft, the world's largest software maker, has been courting Yahoo for several years in hopes of expanding its share of the online search market.
After being repeatedly rebuffed, Microsoft launched an unsolicited bid to buy Yahoo but met such staunch resistance that it withdrew its last offer of 47.5 billion dollars nearly 15 months ago.
Microsoft is counting on Yahoo's search engine, which ranks No. 2 with a worldwide market share of 8%, to pose a more formidable challenge to Google, which holds 67% of the global audience.
The deal is likely to draw anti-competition scrutiny. Last year the US Justice Department analysed Yahoo's plans for a search advertising partnership with Google before deciding that it would give Google too much control over the market - a conclusion supported by Microsoft. The opposition forced Google and Yahoo to scuttle their deal.
Google is working on a free operating system for inexpensive personal computers in a move that could threaten Microsoft's Windows franchise. If it succeeds, Google's alternative, called Chrome OS, could divert some revenue from Microsoft while the software maker is trying to grab more of the money pouring into search advertising.