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After about a week of testing, Yahoo and Microsoft just announced that they have now finalized the transition from Yahoo's own search engine to Microsoft's Bing. Microsoft now powers all of Yahoo's free, organic Web, image and video search results in the U.S. and Canada, though Yahoo will continue to offer its own set of search tools like Site Explorer and Search Monkey. The fact that Yahoo search is now "Powered by Bing" marks the end of a one-year transition period. Last July, after two years of back and forth, Microsoft and Yahoo agreed on a 10-year search and advertising deal.

The European Union and the U.S. Department of Justice just cleared the proposed search deal between Microsoft and Yahoo. Under the terms of this deal, Microsoft's Bing will soon replace Yahoo's own search engine on Yahoo's sites, while Microsoft will get an exclusive 10-year license to Yahoo's search technology. Yahoo will receive 88% of all the revenues from search ads on its site for the first five years of the agreement and handle the sales for Microsoft's and Yahoo's premium search advertising inventory.

Google's dominance in the search engine market isn't likely to end anytime soon, but Microsoft's Bing managed to continue its slow but steady growth last month, even though the search engine market in general remained at seasonal lows. According to the latest data from Compete, Bing's market share only grew from 8.7% in August to 8.8% in September, but the total query volume on Bing grew 8.2%. All the other large search engines - except for Ask - registered a decline in total search queries last month.

During a press conference today, Yahoo announced a large number of updates to Yahoo Mail, Search, and Messenger. Yahoo Mail, for example, will now feature status updates from a user's friends on its homepage. Yahoo Search will also receive a major redesign in the near future. Even though Yahoo will obviously switch to Microsoft Bing soon, Yahoo wants to align the look and feel of its homepage and search application. In the process, Yahoo will now also highlight more of its search services, including Search Monkey, right on its search results pages.

A few months from now, Yahoo's search engine will be "powered by Bing." After months of back and forth between Microsoft and Yahoo, the two companies finally announced a deal today that will bring Microsoft's search engine to Yahoo's properties, while Yahoo will become the sales force for both companies' premium search advertisers. Barring any roadblocks from industry and government regulators, this deal will grant Microsoft an exclusive license to Yahoo's core search technologies for 10 years. Yahoo expects that this deal will increase the company's cash flow by about $275 million.

Today, a number of rumors about a potential partnership between Yahoo and Microsoft surfaced once again. Almost a year ago, after months of back and forth between Microsoft and Yahoo, we thought any deal between the two companies was finally off the table, but rumors about potential deals continued to bubble up regularly in the last few months. Now, some news outlets are reporting that the two companies may be close to signing a partnership agreement that would allow them to collaborate on search technology and advertising. Bloomberg's Dina Bass, citing anonymous sources, reports that a deal could be finalized within the next two weeks.

With Bing, Microsoft is definitely trying to make a difference in the search engine market, and while Microsoft's new search engine only launched less than a week ago, web analytics provider StatCounter released some interesting data this morning which shows Bing in the #2 spot ahead of Yahoo Search, and, of course, behind Google. What is interesting, though, is that Bing is mostly taking market share from Google, while the stats for Yahoo Search and AOL have remained stable. According to StatCount, Bing reached a 15.6% market share in the U.S. yesterday (Live Search never made it past 7%), while Google's share was down almost 6%.

Yahoo unveiled major changes to its image search service this morning and the user experience is now better than Google Image Search. Google may have all kinds of special collections (like the new Life Magazine archives) but Yahoo's image search is just more pleasing to use.

The new Yahoo! interface includes more recommended search queries for related images than Google, a next-image picking slideshow on each image's page, and an easy direct link to the image itself. Unfortunately, there is not a filter by copyright conditions, which is a major shortcoming.

Yahoo today announced a new feature for SearchMonkey that makes it very easy for site owners to embed flash videos, games, and documents directly on the Yahoo Search results page. The first sites to make use of this new feature are Hulu, Metacafe, and YouTube. Whenever a video from these sites appears in your search results, you can now watch it immediately in an embedded player right on the search results page.

Google may be outperforming Yahoo Search in terms of market share, but with programs like Search Monkey and BOSS (Build Your Own Search Service), Yahoo is still trying to innovate in the search space. Today, Yahoo announced a new feature that integrates Yahoo Search with some of Facebook's core functions. Whenever you see a Facebook profile in your search results, you can now directly add somebody as a friend, send messages, see their friends, or poke them.