Nov. 3 (Bloomberg) -- Google Inc. and Yahoo! Inc. revised the terms of their proposed Internet-advertising accord, seeking to win support from U.S. antitrust officials, people familiar with the matter said.

The new agreement will run two years instead 10, said the people, who asked to remain anonymous because the talks are private. The new proposal also will limit the amount of revenue Yahoo can receive from the arrangement to 25 percent of its total Web search sales, they said.

The negotiations are aimed at preserving a deal that Yahoo needs to shore up sales after shunning takeover advances from Microsoft Corp. this year. Advertisers and Microsoft, which offered to buy Yahoo for as much as $47.5 billion to catch up with Google, have argued that the Google agreement would hurt competition and raise online marketing prices.

Google and Yahoo are ``trying to avoid leaving Yahoo exposed to a Microsoft acquisition,'' said Jeff Lindsay, an analyst with Sanford C. Bernstein & Co. in New York. He recommends buying Google and has a hold rating on Yahoo. He doesn't own shares in either company.

The Wall Street Journal reported the changes earlier today.

Google's Dominance

It's unclear whether revising the agreement will overcome the Justice Department's concerns that the alliance is anticompetitive. Google, owner of the most popular Internet search engine, handled 62.9 percent of U.S. queries last month, according to research firm ComScore Inc.

``We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process,'' Google spokesman Adam Kovacevich said.

Google, based in Mountain View, California, and Sunnyvale, California-based Yahoo said they are still discussing the agreement with the Justice Department and declined to comment on the specifics. Gina Talamona, a spokeswoman for the department, also declined to comment.

``We believe strongly that this agreement will strengthen Yahoo's competitive position in online advertising and will help to drive a more robust, higher-quality Yahoo marketplace for our advertisers, publishers and users,'' Yahoo spokeswoman Tracy Schmaler said.

Following Instructions?

The new proposal has a high chance of getting approved if regulators told Google and Yahoo to modify the original agreement, Sanford C. Bernstein's Lindsay said.

The original agreement would have added $800 million to Yahoo's sales and boosted operating cash flow by $450 million a year, the company said earlier. Analysts project that Yahoo's sales will drop 22 percent this year to $5.43 billion, according to a Bloomberg survey.

Earlier this month, Yahoo and Google said they had agreed to a ``brief'' delay in the start of the venture to give U.S. antitrust officials more time to study it.

Yahoo has said its agreement with Google would cover sites in the U.S. and Canada. The partnership isn't exclusive, meaning other companies would be able to sell ads that appear on Yahoo's pages.

Microsoft, seeking to narrow the gap with Google in Internet advertising, tried to buy Yahoo this year. Microsoft walked away from the bid in May after Yahoo asked for a higher price.

Yahoo dropped 7 cents to $12.75 at 4 p.m. New York time in Nasdaq Stock Market trading. Google fell $12.87 to $346.49. Microsoft, based in Redmond, Washington, rose 29 cents to $22.62.

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

Last Updated: November 3, 2008 19:35 EST