With upward of two-thirds of the search market, depending on what survey you use, one would not imagine that Google would worry too much about any kind of hookup of Microsoft and Yahoo.

Think again.

Sources at Google said the company is bracing for a more robust rival, which will force the company to compete and innovate more aggressively.

They add that Google will likely try to keep a low profile at first in opposing the deal announced today, positing that regulators have the same opinion about fewer competitors in the market as they did when opposing a similar Google-Yahoo search deal last year.

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BoomTown was so glad we had this time together with Yahoo CEO Carol Bartz and Microsoft CEO Steve Ballmer, just to have a laugh or sing a song about a major search and advertising deal.

I liveblogged the conference call, which I updated as it happened.

Did Ballmer scream and jump up and down? Did Carol say something naughty?

Read on!

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Here is Yahoo CEO Carol Bartz’s letter to the Yahoo “fans,” which appeared on the company’s blog this morning.

Main messages: Better! Google is a lopsided monster! Microsoft is a frenemy!

And, mostest of all: WOW!

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Finally.

After a decade of competition, several years of push-me-pull-you partnership talks among innumerable execs come and gone and even a hostile takeover that went bad, Yahoo and Microsoft have officially struck a landmark 10-year search and online advertising deal.

While it is in no way as sweeping as some had expected, the deal marks the most important union of digital companies in recent times.

“In simple terms, Microsoft will now power Yahoo! search while Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers,” said the two companies in a joint press release.

Here are the particulars.

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According to several sources close to the situation–under the terms of a pending large-scale deal, in which Yahoo would sell search advertising for its sites and some of Microsoft’s, while Microsoft search technology would power it–Yahoo would get to keep pretty much all the revenue and more for the next three years.

Sources said that in the first two years of the partnership, which is expected to be announced tomorrow, Yahoo would keep 110 percent of all revenue. And, in the third, Yahoo would get 90 percent.

That could represent many billions of dollars, since Yahoo will be selling for both companies.

For Microsoft, the payment will–within four years–allow the company to become the de facto No. 2 search technology player after Google.

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As BoomTown reported earlier today, Yahoo and Microsoft have struck a search and online advertising partnership that sources said will be announced tomorrow.

But it is eminently instructive to look at the deal that Microsoft had offered Yahoo almost exactly a year ago, which was rejected by Yahoo in favor of a competing bid by Google.

The Yahoogle deal, of course, failed, after regulators looked askance at a partnership of the No. 1 and No. 2 search players.

The new deal between Yahoo and Microsoft, according to sources, certainly seems a lot smaller than the one offered last June, although there might be a surprise yet to come.

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Multiple sources close to the situation said that the online search and advertising deal between Microsoft and Yahoo has been struck and will be announced within the next 24 hours.

While it is not clear if the actual papers have been inked or approved by the boards of the two companies, sources said it was a formality and that negotiations are complete on a deal that is less sweeping than originally conceived.

In any case, making any partnership is likely to be the cause of much relief at both companies, since they have been trying–without success–to join together to mount a better offense in the search sector against the dominant Google.

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When reports came out last week that Google and Yahoo were downsizing their controversial search advertising deal, I told a Yahoo exec I happened to be having dinner with that that it was the surest sign that the search giant was about to dump the long-suffering Internet portal.

The exec, who made the case that the deal was always tactical and not strategic, laughed. For all its problems, Yahoo has always been a straight-up player and such sneaky machinations are not its strong suit.

Google, not so much.

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There is a mini-tempest brewing over how shares were tallied in the Yahoo annual meeting last Friday, specifically around whether a group of votes withheld by one of Yahoo’s major shareholders was not counted, counted incorrectly or even voted incorrectly by the investor.

According to sources close to the thinking at Capital Research & Management, the proxy committees for its two large funds that hold a significant stake in Yahoo recommended last week that they withhold votes specifically from CEO Jerry Yang and from various board members, such as Chairman Roy Bostock, to register disappointment with their performance.

Thus, sources said, the investment fund has approached outside vote tabulator Broadridge Financial Solutions, a Lake Success, N.Y.-based financial services company that does securities clearing and processing, about whether those votes were correctly counted.

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Sitting at the Senate hearings about the Yahoo-Google ad search deal this morning in Washington, D.C., let it first be said that BoomTown is deeply dubious of whether that it is a good thing for consumers and advertisers, as both Internet companies have asserted.

But this was my most certain conclusion:

The worst case scenario is actually for politicians to meddle in the Internet space with their largely Web-ignorant mitts.

But that’s just me!

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Sure, Microsoft and Yahoo are talking this weekend about some deal that makes all parties happy.

But make no mistake: It is Yahoo pushing the one-price-buys-all idea, while it is Microsoft that would still prefer to buy just some of Yahoo’s assets, specifically its search and search-ad business.

Why? Look no further than Microsoft Chairman Bill Gates, who has been relatively silent as this whole takeover circus has unfurled over the last several months.

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After today’s events, I guess you could say Yahoo and Microsoft tried, holding a series of meetings that ended up proving exactly how incompatible the companies were.

Kind of like Oscar and Felix, but not funny in any way at all.

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As someone who has been a longtime critic of Microsoft’s (MSFT) historically thuggish tendencies, BoomTown finds it a little hard to believe that Yahoo (YHOO) and Google (GOOG) think that they can get away with any kind of significant search-ad outsourcing deal that would move the needle at Yahoo and, I guess, pressgang the software [...]

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What if Microsoft just walked away from its unsolicited bid it has made for Yahoo?

That’s a new concept that I have been hearing more frequently over the last several days from sources in Silicon Valley and Wall Street.

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Over the last year, as he has sought to revive the flagging fortunes of Yahoo, CEO and Co-Founder Jerry Yang has ferreted himself away from the spotlight and has seldom made himself available to talk to investors or reporters about what he has been up to.

I dubbed it the “cave” strategy, mostly because that’s what many around Yahoo called it. Since Yang really didn’t have anything good to say about the troubled Internet giant, he didn’t say anything at all.

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