The combined companies could have created a formidable challenger to Google Inc., but the Web search king helped scuttle the deal by complaining about its potential impact on competition and by tossing Yahoo a lifeline in the form of an advertising partnership.

Now Google not only gets to watch its two biggest competitors continue to struggle, but is preparing to bulk up by nearing a deal to place ads on Yahoo’s search engine, the second biggest.

“Microsoft used to set the agenda for technology, period, and Google is setting the agenda now,” said Jupiter Research analyst David Card.

People familiar with the talks said that Google and Yahoo were negotiating their arrangement, which has already drawn scrutiny from antitrust regulators, in hopes of unveiling it within a week.

But landing Yahoo as an advertising partner four years after it dumped Google to try its own hand at Web search would give the Mountain View, Calif., company even more dominance: it reaps three out of every four dollars spent on search ads in the U.S.

A distant third-place Microsoft would be left scrambling for mergers or partnerships with AOL and other second-tier players in the US$26-billion online-advertising industry.

Small wonder then that Google lifted its voice from the pews to object to the “MicroHoo” marriage, and why its executives were happy when Microsoft withdrew its bid Saturday after failing to agree on a sale price.

Jay Wong, a portfolio manager with Los Angeles-based Payden & Rygel, which owns shares of Google, said the failure of the Microsoft-Yahoo merger solidified Google’s spot as the top search engine and would allow the company to continue to grab market share from both companies.

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