Microsoft's plan to establish a strong footing in online advertising suffered a big blow yesterday as merger talks with Yahoo finally formally failed and Yahoo said it would let Google sell search ads on its site. Separate statements from Microsoft and Yahoo signaled a real rift between the two after their agonising on-again, off-again talks, and Yahoo shares fell 10% as final hopes of a full or partial acquisition faded. Microsoft shares rose more than 4% as investors showed relief that the company would not be paying too high a price for a deal they considered risky, even though its biggest rivals on the Web aimed to work together. Yahoo said it had agreed to let Google put search ads - advertisements placed next to search results - on its site in what it called an $800 million annual revenue opportunity that would boost cash flow by $250 million to $450 million in the first 12 months. Google and Yahoo, No. 1 and No. 2 respectively in search, will pit ads against each other in auctions for the ad that pays the most. The process is nonexclusive, meaning others could join in the bidding to place ads, a factor that could make the deal easier to pass regulatory approval. The companies agreed to wait 3-1/2 months for regulatory approval and to offer a way to end it if Yahoo is taken over. The end? "It certainly seems to be the end," said Cantor Fitzgerald analyst, Derek Brown. "In their most recent discussions, they were talking about totally separate visions of both a deal and the future." Microsoft is expected soon to be on the prowl for other acquisition targets because it has not given up its goal for online advertising. "Microsoft will keep trying. Yahoo is one of the most popular sites on the Web and there is no one else with as much traffic," said Morningstar analyst Toan Tran. Yahoo shares sank as low as $22.50 on news of the talks failing and expectations of the Google deal. It was their lowest level since Jan. 31, the day before Microsoft announced its offer for the company. Yahoo shares fell $2.63 to $23.52 on Nasdaq. Google shares finished up $7.75 at $552.95 and Microsoft closed up $1.12 at $28.2 Source: SABC/Reuters