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Ever since Microsoft Corp made a $47.5bn offer to buy out Yahoo Inc. early last year to match the growing dominance of Google, something inevitable to develop out of this was always predicted.

Microsoft’s initial bid was rejected by Yahoo and its attempt to seal a search advertising deal with Google fell apart under regulatory scrutiny.

However, if reports are to be believed, Microsoft and Yahoo have agreed upon an online search and advertising partnership that will make Microsoft the second most searched portal only after Google.

The news and details of the expected deal were first reported by the AllThingsDigital blog, Advertising Age, The Wall Street Journal and the BoomTown blog.

Microsoft will not pay an upfront fee to Yahoo, and the focus of the deal is on sharing revenue between the two companies. Under the expected deal, Microsoft's new Bing search engine will power Yahoo's searches while Yahoo will handle the advertising sales, using Microsoft technology.

The deal gives a big boost to Bing. The combined search market share of Yahoo and Microsoft would approach 30%. That's still far below Google's 65%, but analysts say it may provide enough of a critical mass at least to stave off further Google advances and help the enlarged search engine gain some ground.

The deal will probably be welcomed by investors in both companies, since it lets each play to its respective strengths. Yahoo is most successful as a media company—and that includes selling advertising.

It's not yet clear whether the final terms have won approval by both companies, and it could be delayed beyond the expected July 29 announcement date. But the reports indicate that negotiations, which recently heated up after more than a year of on-again, off-again talks, are essentially complete.