I think in the short-term this is not a good move, but in the long-run I think it was better to do this than go with Microsoft.

Yahoo and Google will make a joint announcement at 1:30 California time this afternoon, we’ve heard from a reliable source close to one of the companies. What is the announcement? The very likely answer is, a search partnership between the two companies that outsources all or part of Yahoo search marketing, and possibly search itself, to Google. The two companies announced they’d test a search partnership in April...

 

Update 3: Yahoo Stock is down sharply based on this story and a follow up by Reuters.

 http://www.techcrunch.com/2008/06/12/googleyahoo-announcement-at-130-this-afternoon/

Of course, this has Congress nervous:

U.S. Senator Herb Kohl (D-WI), chairman of the Senate Antitrust Subcommittee, came out with a statement this evening on the Yahoo-Google (NSDQ: GOOG) deal: “We will closely examine the joint venture between Google and Yahoo (NSDQ: YHOO) announced today. This collaboration between two technology giants and direct competitors for Internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further in the Antitrust Subcommittee.”

 But Google seems pretty quick to dismiss this as a merger too.