Some senior Microsoft search bosses have reportedly flown to California for face-to-face talks with Yahoo management over a search merge. The two sides are said to be at their closest point to a deal to date.

According to a report by the All Things Digital site, the two sides are being even more secretive than usual. However, it quotes a source as saying "It is down to the short strokes, for sure; it is just a question if we can finally close this." (Source: allthingsd.com)

Naturally, the finer points of any potential deal are under wraps at the moment. However, some general principles have emerged: Microsoft would pay a hefty sum (possibly in the billions) to take over Yahoo's search advertising business, then pay it some royalties out of future revenues for a fixed period.

Meanwhile, Yahoo would likely take over the display advertising business for both firms.

Three Billion Dollar Deal

One report puts the figures as a $3 billion up-front payment from Microsoft, with some hefty royalties: 110% of profit from Yahoo-originated searches for the first two years and 90% in the third year. That's an expensive amount on paper, but would give Microsoft control of as much as 30% of the entire search market.

Yahoo would have a healthy cash injection over the next three years, allowing it to stabilize and rebuild the other elements of its business. (Source: 247wallst.com)

It may seem strange that Microsoft is suddenly closer to a deal after the launch of Bing helped it gain some ground in the search market. It may be, however, that Bing changed the relationship with Yahoo and Microsoft, such that Microsoft was more confident about succeeding on its own and thus less desperate for a deal.

That change in relative status might have been enough to make it easier for the two sides to negotiate a mutually acceptable deal.