Microhoo Pleased with its test of Google's ad engine, Yahoo! is considering a more extensive partnership with its search rival/large weapon against Microsoft.

Citing "people familiar with the matter," The Wall Street Journal reports that Yahoo! has "moved closer to outsourcing its search advertising to Google." According to the these sources, both companies are pleased with Yahoo! test of Google's AdSense for Search service, which has seen Google-brokered ads posted alongside Yahoo! search results.

Of course, this is just another attempt to fend off Microsoft's ongoing Yahoo! takeover bid. On February 1, Microsoft bid $44.6bn for the world's second largest search engine, and the Redmond software giant is now threatening a proxy fight if Jerry Yang and company don't succumb.

When Yahoo! announced its Google ad test, Microsoft said that any "definitive agreement" between Yahoo! and Google "would make the market far less competitive." And there's little doubt that such a pact would face scrunity from regulators.

But sources tell The Journal that Yahoo! and Google are looking for ways to appease regulators. This could include limiting their partnership to certain search queries or geographical regions. ®

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