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As the Wall Street Journal reports, Microsoft is now willing to raise its bid for Yahoo to as much as $33 per share, up from about $29. Apparently, Microsoft wants to avoid the proxy battle its CEO Steve Ballmer had threatened. The $33 bid would still be lower than what Yahoo is looking for (the search company’s executives want to get an offer in the high $30s), so this is far from a done deal. A raised bid would put further pressure on Yahoo, however, and make it more difficult for the company to walk away from the bid as its shareholders might be inclined to support the takeover.

In the meantime, Google is still considered a possible long-term partner of Yahoo. Google and Yahoo had recently started testing Google’s search ads on Yahoo’s sites, and it is very well possible that the two search giants will enter into a long-term agreement. This will, in turn, put pressure on Microsoft, of course. But although Google says it doesn’t see a problem here, I think it should be difficult for YHOO/GOOG to enter into a broader paid search agreement, as the two companies already make up for the by far biggest part of web search and online advertising, so that a deal could clash with antitrust regulations.