Google may walk away from its proposed advertising search deal with Yahoo rather than agree to Justice Department restrictions, according to reports in the Wall Street Journal and Bloomberg News, citing anonymous sources. The turn of events would be a comeuppance for the companies -- which at one point asserted that the deal didn't technically require regulatory approval.

The agreement had been designed to prop up Yahoo -- and defend it from Microsoft's unsolicited acquisition bid -- by letting the struggling Internet company participate in Google's lucrative advertising system. Under the deal, people using Yahoo's search engine would have seen ads from Google's system next to selected results. Microsoft vehemently opposed the deal, saying it would consolidate too much of the search advertising market in the hands of Google, the dominant company in the business. 

Then again, even without the deal, Google accomplished may have been its most important goal -- keeping Yahoo away from Microsoft. In this post on the Marketing Pilgrim blog, Andy Beal goes so far as to assert that Google didn't ever intend to go through with the Yahoo arrangement, and that the only purpose was to keep Microsoft from "getting its grubby little hands on it."

Setting aside its continuing struggles in the search market, Microsoft still has reason to be pleased with how this turned out. Yahoo's share price has recently been stuck in the teens -- which means Microsoft would have been seen, in hindsight, as overbidding at its original $31-per-share offer. Google's white-knight strategy was enough to help Yahoo fend off the acquisition bid, effectively preventing Microsoft from making what many people saw as a mistake. And now it appears as if the Redmond company's two biggest Internet rivals won't be joining forces after all.

Maybe, in the end, Google simply saved Microsoft from itself.