Reuters reports Google and Microsoft are in a "two-horse" race to strike an online advertising partnership with AOL. Currently AOL is using Google to provide search results but it looks like they may switch to MSN soon.
Google has generated about 11 percent of its revenue in the first half of this year from its current deal to provide search technology to AOL, but this figure overestimates the importance of the deal to the company.
Analysts said the deal only accounts for 4 percent of revenue after Google returns fees to AOL in its revenue-sharing agreement.
Meanwhile, Microsoft, eyeing Google's lead, is seeking to build its own paid search business, which analysts consider one of the most lucrative sectors in online advertising. It is testing a syndicated search system that competes with Google in France and Singapore and plans a worldwide launch next year.
Microsoft's current proposals with AOL involve a simpler deal that would marshal the advertising forces of both companies in a joint venture, one source said.