Google announced today that it has reached an agreement that gives Yahoo! the ability to use Google's search and contextual advertising technology through its AdSense for Search and AdSense for Content advertising programs.

In the whole Microsoft Yahoo! take-over madness, Yahoo! was testing Google Ads in April. Now Yahoo! is officially going to use Adsense on their search pages along with their advertisements.
In addition, Yahoo! can serve contextually targeted ads on its U.S. and Canadian web properties as well as on its current publisher partner sites. Yahoo! will continue to operate its own search engine, web properties and advertising services.

In addition, Yahoo! and Google agreed to enable interoperability between their respective instant messaging services bringing easier and broader communication to users.

"This commercial agreement provides Yahoo! with the opportunity to deliver more relevant ads to users and provide advertisers and publishers with better advertising technology to help them succeed in their own businesses," said Eric Schmidt, Chairman and CEO of Google. "This agreement will preserve the competitive and dynamic online advertising space."

This non-exclusive agreement allows Yahoo! to enter into similar agreements with other advertising providers. In addition, Yahoo! will maintain relationships with its own advertising customers and will continue to rely exclusively on its own advertising program outside of the U.S. and Canada. The agreement has a term of up to ten years: a 4-year initial term and two 3-year renewals at Yahoo!’s option. Financial terms between the two companies were not disclosed.
More details in this Google . See also this entry in the Google Blog.

This deal just extends the reach of Google tremendously.

Yahoo! also officially announced that the Microsoft take-over talks are over for good.