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According to New York Times, talks are underway between Google and Yahoo on teaming up and allowing Yahoo to use Google’s more sophisticated ad technology to deliver ads next to Yahoo’s search results.

The deal is set to bring Yahoo $1 billion annually; despite concerns over what effects it may have on the Internet search and Advertising.

The major concern is regarding the antitrust challenge; which the Google Chief Executive Eric Schmidt highlighted by saying that we would anticipate structuring a deal to address antitrust concerns. Where as the people involved in shaping Google consider this to be nothing more than a straight forward supplier arrangement. This is similar to computer and printer markets where 80% of the laser printers are supplied with printer engines by Canon. In addition to this Microsoft also dominates the Office software market and supplies it to Appl computers. Such arrangements are very common and various people consider them to be fruitful as they help in making the company more efficient.

Antitrust experts also consider the partnership void of any concerns, save for the fact that it will make Google a dominant force in Internet search and advertising. This in turn would help Google capitalize on the market power of corporate winners.

The major concern for Yahoo in partnering with Google would be the downsizing of investments in its own search and technology, something it has spent millions to bridge the gap with Google. Statistics in April show that Google has 61.6% of the search market in United States compared to Yahoo’s 20.4% and Microsoft’s 9.1% (perhaps the motivation behind Microsoft’s bid for Yahoo was to become a weighted rival to Google).

There has been success in tests conducted by Yahoo in collaboration with Google since April, where Google placed some ads on Yahoo searches in United States (An expansion in partnership that Microsoft is keenly eying).

No matter how good the deal is for Yahoo financially, it reduces the competition dramatically along with higher prices for ads, lesser choice for Web publishers and lesser innovation in search and search ad technology.