Yahoo will work with its biggest competitor, Google, to carry the company's advertising on its own search results pages in a daring bid to head off Microsoft.

Yahoo has agreed to host Google ads beside 3 per cent of its search results in an attempt to jump start revenue and show its shareholders that it can turn the company around in the face of a looming hostile bid by Microsoft.

Time to evaluate revenue potential

"Yahoo will be testing Google's AdSense for Search service, which will deliver relevant ads alongside Yahoo's own natural search results," said Google in a statement. "This is only a limited test and does not necessarily mean that Yahoo will join the AdSense program."

Microsoft reacted as expected, with a company lawyer saying: "Any definitive agreement between Yahoo and Google would consolidate over 90 per cent of the search advertising market in Google's hands. This would make the market far less competitive."

Nevertheless, if Yahoo truly wants to push Microsoft away, signing a deal with the software company's arch rival may be its best bet.