Reuters reports the alliance allows each of the companies to sell each other's unsold premium advertising inventory and display ads. It should be in action by next year.
Display units make a lot of cash. They are the big ones that appear on web pages and attract marketers interested in branding their products or services.
Rik van der Kooi, corporate vice president of the Microsoft Advertising Business Group claimed that the partnership was a "rising tide that lifts all boats" which we guess is a bit like a rolling stone gathering no moss.
The move has some support from the big advertising outfits. Nick Beil, president of the VivaKi Nerve Center, part of the advertising holding firm Publicis Groupe SA told Reuters that the deal was important.
He said that the alliance was attractive because it broadens the potential reach of brand advertisers.
However, structurally it is a bit odd. While they are striking a partnership and sipping from the same milkshake using several straws they are still competing with each other for both advertiser spending and publisher partners.
Yahoo, AOL and Microsoft executives said they are not expecting any mutterings from the Department of Justice, which could potentially frown upon the partnership because it could reduce competition or knock ad pricing.
This is because competition between all the players will increase and it will, in theory, give Google and Facebook a run for their money.
AOL, Microsoft and Yahoo are currently expected to lose share in the advertising market, with Facebook expected to surpass Yahoo for the first time this year.