SUNNYVALE, Calif. — Microsoft turned to Internet pioneer Yahoo for help in fighting its biggest-ever competitive threat, then only made that threat stronger.
Yahoo and Microsoft on Thursday said they had ended nearly five months of merger and partnership talks, born out of the software giant’s frustration at falling far behind Google in online advertising.
Yahoo’s stock plunged more than 10 percent to $23.52.
But after the stock market closed, Yahoo turned around and struck an online advertising alliance with rival Google. Yahoo said it would get a financial boost by using Google’s superior system for placing text ads next to its search results and on some of its Web pages.
The deal between the top two search engines triggered objections from antitrust groups, which said advertisers in effect would lose a major alternative for touting their wares. Consumer groups warned of an increased risk to privacy, and an influential senator pledged to investigate.
Yahoo and Google said they would delay the start of their partnership by as long as 3 1/2 months to give the Justice Department a chance to scrutinize the deal.
For Microsoft, analysts said, the tie-up was the worst possible outcome from the unsolicited $44.6 billion bid it made to buy Yahoo more than four months ago.
Advertisers pay Google each time someone clicks on one of the text ads it brokers. With Yahoo, Google will get its ads on one of the world’s most-visited networks of websites, while denying Microsoft the chance to do the same.
“There is no hope for Microsoft in the search space,” said Brian Bolan, an analyst with Jackson Securities.
The Microsoft-Yahoo dance began Feb. 1 with Microsoft announcing an offer of $31 a share in cash and stock, more than 60 percent above where Yahoo’s stock was trading. It later offered $33, and Yahoo co- founder and chief executive Jerry Yang asked for $37 before Microsoft CEO Steve Ballmer walked away in frustration.
On Thursday, Yahoo said it saw little benefit in such a deal and was ending talks.
In its deal with Google, Yahoo will continue to produce the regular search results and many of the search-related ads that its newly overhauled systems generate.
But some of its search users in the U.S. and Canada will also see ads placed by Google. Google will give Yahoo a cut of the fees it charges advertisers.
“The flexibility of the deal lets us get the best of both worlds,” Yahoo president Sue Decker said.
The two will also work to combine their instant-messaging platforms, and Yahoo executives said they might help Google improve its display ads.
