Yahoo has struck an $800 million (£400 million) deal with Google to run the company's adverts along with its own and ended talks with Microsoft.
The non-exclusive deal, which is likely to be assessed by competition authorities, will see Google provide Yahoo with access to its AdSense for search and AdSense for content advertising programs in the US and Canada.
Under the terms of the agreement, Yahoo will select the search term queries for which - and the pages on which - Yahoo may offer Google paid search results.
Yahoo said the deal is worth $800 million in annual revenue.
In addition to announcing the deal, Yahoo said talks with Microsoft for a whole or partial acquisition of the company were now over.
Yahoo said Microsoft stated it is not interested in pursuing an acquisition of all of Yahoo, even at the price range it had previously suggested.
Instead, Microsoft wanted to buy Yahoo's search business alone but that would leave the company "without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo stockholders" the board said in a statement.
California-based Yahoo has been searching for alternative tie-ups since Microsoft made its unsolicited bid earlier in the year.
In April, Yahoo teamed up with Google to run its AdSense for Search service alongside its own search queries and today's deal formalises the agreement.
Microsoft initially offered $31 (£15) a share for Yahoo, lifting it to $33 a share – valuing Yahoo at $47.5 billion (£23.5 billion) - when the deadline passed without an acceptance from Yahoo's board.
Yahoo was holding out for $37 a share and Microsoft eventually walked away.
Shares in Yahoo fell ten per cent on the news, while shares in Google rose 1.42 per cent.
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