After long-drawn speculations, Yahoo! and Microsoft have come together to forge a formidable alliance in Internet search and advertising space that will challenge the dominance of market leader Google.The ten-year agreement would see both the companies coming together in the search arena and sales activities related to search advertising.

“In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers,” the two firms said in a statement today.Yahoo! would be compensated by Microsoft through a revenue sharing agreement on traffic generated on Yahoo!’s network of both owned and operated and affiliate sites.

“Microsoft will pay traffic acquisition costs (TAC) to Yahoo! at an initial rate of 88 percent of search revenue generated on Yahoo!’s O&O sites during the first five years of the agreement,” the statement noted.