REDMOND, Washington: Microsoft, the IT giant, and Yahoo, the online search firm, are said to have entered talks about the possibility of forging an alliance, as both companies seek to counter Google's dominance of the internet advertising market.

Microsoft's ceo, Steve Ballmer, is reported to have met with Carol Bartz, his counterpart at Yahoo, last week, although the content of their discussions has not yet been revealed.

The options thought to be under consideration are said by observers to include Yahoo “outsourcing” some or all of its search operations to Microsoft to save on costs.

Other possible outcomes could result in Yahoo selling display ads on some or all of Microsoft's websites, and Microsoft placing ads linked to Yahoo's search results.

The two firms may also pool their resources in an area where they are struggling to make an impact on Google, such as in Europe.

Ballmer has recently reiterated his desire to make some sort of deal with Yahoo, after Microsoft's takeover bid for its rival was rejected last year.

Data sourced from Wall Street Journal/Financial Times; additional content by WARC staff