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Update (2:00PM PT): Yahoo has confirmed this story, announcing a US-only "AdSense for Search" test.
Here's yet another twist in the Microsoft-Yahoo saga: The Wall Street Journal is reporting that Yahoo is in talks to test Google ads in search results. From the report:
"Yahoo Inc. is close to announcing that it plans to carry search advertising from Google Inc. as part of a test that could lead to a broader partnership, according to people familiar with the matter.
The short-term test, involving a very limited percentage of Yahoo's Web search queries, is designed for the two sides to evaluate the revenue potential of a broader search ad outsourcing arrangement. They have been discussing such an arrangement as part of Yahoo's pursuit of alternatives to Microsoft Corp.'s unsolicited acquisition offer, according to people familiar with the matter."
Of course, the idea here is that using Google will increase Yahoo's revenue per search (RPS), which, assuming search volume stays the same, means higher sales for Yahoo. In effect, a deal with Google would mean that Yahoo makes more money without really doing anything other than outsourcing their advertising, which, at least provides some numbers to substantiate an argument that it's a better value for the company than accepting Microsoft's existing $31/share bid.