The Wall Street Journal is reporting that Time Warner and Microsoft are close to working out an advertising alliance that they hope would challenge search engines such as Google and Yahoo!. Under the new proposed deal, Time Warner’s America Online unit would switch to Microsoft’s search engine and the two companies would set up a joint venture to sell online advertising across both AOL and MSN portal sites.

The report also sites that Google is still in talks with AOL about the possibility of their own alliance but Google refuses to guarantee a minimum amount of revenue – something Microsoft is willing to do.

Under the proposed Microsoft AOL deal, both companies will now be able to sell ads across into each other’s sites and reach far more places than ever before.

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