The market likes the idea of a Yahoo-Microsoft search-ad partnership–as it should.
Yahoo is barely clinging to a viable search business, and Microsoft’s is so small as to be irrelevant. Put the two together, though, and they’ll have nearly 30% of the US market. That, finally, is a viable alternative for advertisers.
Yahoo, meanwhile, is still the big-dog in display ads. Better for Yahoo to focus on those ads and let Microsoft worry about competing with Google’s engineering team on search algorithms.
A search-ad deal would help Yahoo’s bottom line, by allowing it to save engineering costs. It would also allow it to refocus the rest of its business. So what’s not to love?