Microsoft announced today that it is considering alternatives to improve and expand its online services and advertising business, through an arrangement with Yahoo!

Microsoft says it is has raised with Yahoo! an alternative that would involve a transaction with Yahoo! but not an acquisition of all of Yahoo!. Microsoft is not proposing to make a new bid to acquire Yahoo! at this time, but says they may reconsider depending on future discussions with Yahoo!

Mean while, Yahoo! and its Board of Directors are continuing to consider a number of alternatives themselves and say they remain open to pursuing any transaction which is in the best interest of their stockholders.

This is more a promising response from Yahoo! For Microsoft, who had previously refused two bids from the company. With Google at the forefront of Search Engine Technology both Yahoo! And Microsoft need a kick to bring it inline with Google and the Search Engine Race.